OREANDA-NEWS. Fitch Ratings has upgraded the Short-Term Foreign - and Local-Currency Issuer Default Ratings to 'F1+' from 'F1' for PetroChina Company Limited (PetroChina), China Yangtze Power Company Limited (CYPC) and China Petroleum & Chemical Corporation (Sinopec).

KEY RATING DRIVERS

Fitch has revised the companies' ratings following the same rating action on the Chinese sovereign (A+/Stable) on 22 July 2016, Fitch Applies Criteria Changes to Global Sovereign Ratings.

PetroChina, CYPC and Sinopec are assessed on a top-down basis. The companies' ratings are equalised with those of the People's Republic of China via their parents as per Fitch's Parent and Subsidiary Linkage methodology, due to their strong strategic and operational linkages with the state.

KEY ASSUMPTIONS

Fitch's key assumption within its rating case for the issuer is that:

- the linkages between the companies and the sovereign remain intact.

RATING SENSITIVITIES

PetroChina

Ratings on PetroChina will move in tandem with rating changes of its parent, China National Petroleum Corporation (CNPC, A+/Stable), provided rating linkages remain intact

CNPC

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

- a negative rating action on the sovereign

- the company's 'AA-' standalone profile may be lowered if its FFO-adjusted net leverage rises above 2x and FFO-fixed-charge cover falls below 8.0x on a sustained basis

- significant negative free cash flow generation from 2018.

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

- positive rating action on the sovereign, provided linkages between the state and CNPC remain intact or if CNPC's standalone credit profile remains at 'AA-'.

CYPC

CYPC's ratings are equalised with those of China Three Gorges (CTG, A+/Stable), which owns 62% of the company. Positive rating action may arise from an upgrade of CTG's ratings, provided linkages between CYPC and CTG remain intact.

Negative rating action may arise from a downgrade of CTG's ratings or weakening of linkages between CTG and CYPC.

CTG

Positive rating action may arise from positive rating action on the China sovereign, provided linkages between CTG and the sovereign remain intact.

Negative rating action may arise from negative rating action on the China sovereign or a weakening of linkages between CTG and the sovereign. This could include a significant decrease of state control or support.

Sinopec

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

- negative rating action on the sovereign

- weakening linkages between Sinopec and the state.

Positive: Future developments that may, individually or collectively, lead to positive rating action include positive action on the sovereign, provided linkages between the state and Sinopec remain intact.

For the sovereign rating of China, the following sensitivities were outlined by Fitch in its Rating Action Commentary, Fitch Affirms China at 'A+'; Outlook Stable, dated 26 November 2015:

Positive

- Increased evidence that the economy can adjust smoothly while rebalancing without experiencing a disruptive "hard landing".

- Greater confidence that the debt problem in the broader economy can be resolved without a material negative impact on growth or financial stability.

- Widespread adoption of the renminbi as a reserve currency globally.

Negative

- A sharper growth slowdown than currently anticipated, leading to a materialisation of risks to financial and/or social stability.

- A rise in estimated general government indebtedness well above Fitch's current estimate.

- Sustained capital outflows sufficient to erode China's external balance-sheet strengths, or undermine financial stability.

- A change in policy direction that signalled decreased willingness to tackle the economy's imbalances and vulnerabilities, thereby increasing the risk of an eventual disorderly adjustment.