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Fitch Affirms Changde Urban Construction at 'BBB-'; Outlook Stable.

Hong Kong: Fitch Ratings has affirmed Changde Urban Construction and Investment Group Co., Ltd.'s (CUCI) Long-Term Foreign- and Local-Currency Issuer Default Ratings and the rating on its USD250 million 3.7% senior unsecured notes due 2019 at 'BBB-'. The Outlook is Stable.


Linked to Changde Municipality: CUCI's ratings are credit-linked with those of Changde municipality. The link reflects mid-range government oversight and supervision, the strong strategic importance of Changde's public-sector business and mid-range integration with the municipal budget. These factors indicate CUCI would receive extraordinary government support, if needed. CUCI is classified as a credit-linked public-sector entity under Fitch's criteria.

Changde's Creditworthiness: Changde is the third-largest economy in Hunan province by gross regional product (GRP), ranking within the first quartile of China's 333 prefecture-level cities. Changde's GRP growth was higher than that of Hunan and above the national average. The municipality's economy is driven by the secondary industry, with the city being one of Hunan's manufacturing hubs for tobacco, processed foods, ceramics, machinery and textiles.

Mid-Range Legal Status: CUCI is wholly owned by the Changde State-Owned Asset Supervision and Administration Commission (SASAC). The company is registered as a limited liability company under China's company law and its major decisions, including mergers, acquisitions, spinoffs, bankruptcy and liquidation require verification and approval from Changde municipality. The government has indicated it does not plan to dilute its shareholding in CUCI.

Strong Strategic Importance: CUCI is one of Changde municipality's major urban infrastructure construction arms, with assigned jurisdiction within the western-half of the city. CUCI plays an important role in implementing the municipal government's blueprint for urban planning, city infrastructure construction and primary land development. Moreover, CUCI is set to take on more responsibility for the city's water supply, drainage and sewage treatment.

Tight Control and Supervision: CUCI is ultimately controlled by the Changde municipal government, which closely monitors its financing plan and debt levels. CUCI needs to regularly report its budget performance and its board members, except for employee representatives, are all appointed by the government.

Mid-Range Integration with Municipality: The municipality has provided monetary and non-monetary support to CUCI. This includes capital injections and subsidies to fund CUCI's business, which mainly consists of city functional services provided on the municipality's behalf, and to partly fund CUCI's capital expenditure and debt servicing.

Constrained Standalone Profile: CUCI's standalone credit profile is constrained by the public-service nature of its business in developing public infrastructure and providing support to the district's economic upgrade. The company has limited commercialised business. Its strategic link with Changde municipality implies a fair level of extraordinary government support, if needed.


A stronger or more explicit support commitment from Changde municipality may trigger positive rating action on CUCI. Significant changes to CUCI's strategic importance, a diluted municipal shareholding or lower explicit and implicit municipality support could widen the rating gap between CUCI and Changde.

An upgrade of Fitch's internal credit view on Changde may trigger positive rating action on CUCI. Weaker fiscal performance or increased debt of the municipality could lower Fitch's internal assessment of CUCI's creditworthiness and trigger negative rating action on the company.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Geographic Code:9CHIN
Date:Feb 9, 2018
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