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Press Release: Fitch Rates China State Construction International's USD Notes 'BBB+(EXP)'

17 Nov 2017 5:42 am
 
 
The following is a press release from Fitch Ratings: 
 

Fitch Ratings-Hong Kong/Shanghai-17 November 2017: Fitch Ratings has assigned China State Construction International Holdings Limited's (CSCI, BBB+/Stable) proposed US dollar notes an expected rating of 'BBB+(EXP)'. The proposed notes will be issued by China State Construction Finance (Cayman) II Limited, a wholly owned subsidiary of CSCI, and are rated at the same level as CSCI's senior unsecured rating as they represent the company's unconditional and irrevocable obligations. The final rating is contingent upon the receipt of final documents conforming to information already received.

KEY RATING DRIVERS

Rating Linked to Parents: CSCI's rating reflects Fitch's assessment of the credit profile of CSCI's parents and the company's strong linkages with its parents. CSCI is 65%-owned by China Overseas Holdings Limited (COHL), which is in turn wholly owned by China State Construction Engineering Corporation Ltd (CSCECL, A/Stable). COHL's credit profile is supported by its largest subsidiary, China Overseas Land & Investment Limited (COLI, A-/Stable). COLI's ratings are supported by its continued strong performance and its strategic importance to CSCECL. The Stable Outlook reflects Fitch's expectation that CSCI will maintain strong linkages with its parents.

Strategic Importance of CSCECL: CSCECL has operational and strategic ties with the central government and is 56% indirectly owned by the State-Owned Assets Supervision and Administration Commission. CSCECL is the largest state-owned enterprise involved in construction in China. It has a monopoly in aerospace and diplomatic construction, and is also the largest social housing builder in China.

Strong Linkages with Group: CSCI has close operational linkages with its parent companies and strong legal ties - through financing agreements - with the group. It is positioned as the vehicle of infrastructure operation and investment for its parents. CSCI is also the key platform for construction of social housing for its parents.

PPP Driving New Orders: CSCI's new contract growth accelerated to 20% in 2016, from 16% in 2015, driven by the development of the public-private partnership (PPP) model in China. New contracts for infrastructure investments increased by 26% yoy in 2016 and now account for 75% of the company's backlog. Revenue rose 22% yoy in 1H17 as new contracts (January-July) increased by 26% yoy and gross margins expanded by 2pp.

DERIVATION SUMMARY

CSCI's rating is derived from its operational and legal linkage with its parent and ultimate parent. Its final rating is not derived from its standalone credit profile and thus, is not comparable with industry peers.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for CSCI include:

- - Revenue mix remains similar to current mix

- - EBITDAR margin remains stable

- - Capex for 2017-2019 remains below HKD3 billion

RATING SENSITIVITIES

Negative: Developments that may, individually or collectively, lead to negative rating actions include:

- - Weakening of the credit profiles of CSCI's parents

- - Weaker linkages between CSCI and its parents

Positive: Developments that may, individually or collectively, lead to positive rating actions include:

- - Positive rating action on CSCI's parents

- - Stronger linkages between CSCI and its parents

LIQUIDITY

Sufficient Liquidity: CSCI has sufficient resources to meet its liquidity needs as it has long-term stable relationships in the credit markets and support from parent companies.

Contact:

Primary Analyst

- Joseph Fong

- Associate Director

- +852 2263 9922

- Fitch (Hong Kong) Limited

- 19/F Man Yee Building

- 68 Des Voeux Road Central, Hong Kong

Secondary Analyst

- Charles Li

- Analyst

- +86 21 5097 3016

Committee Chairperson

- Kalai Pillay

- Senior Director

- +65 6796 7221

Date of Relevant Rating Committee: 25 January 2017

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable Criteria

- Criteria for Rating Non-Financial Corporates - Effective from 27 September 2016 to 10 March 2017 (pub. 27 Sep 2016)

- https://www.fitchratings.com/site/re/885629

- Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016)

- https://www.fitchratings.com/site/re/886557

Additional Disclosures

- Solicitation Status

- https://www.fitchratings.com/site/pr/1032473#solicitation

- Endorsement Policy

- https://www.fitchratings.com/regulatory

- ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

- Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitchs factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitchs ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

- The information in this report is provided as is without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating

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