19.08.2015, 09:24
Fitch Assigns Beijing Capital Juda's Guaranteed Notes Final 'BBB' Rating
OREANDA-NEWS. Fitch Ratings has assigned Rosy Capital Global Limited's CNY1.3bn 5.25% guaranteed notes due 2018 a final rating of 'BBB'. The offshore yuan-denominated notes are unconditionally and irrevocably guaranteed by Beijing Capital Juda Limited (Juda, the guarantor), an indirect 75%-owned listed subsidiary of Beijing Capital Group Company Limited (BCG; BBB/Stable).
The notes are rated at the same level as BCG's senior unsecured rating, as BCG has granted a keepwell and liquidity support deed and a deed of equity interest purchase undertaking (EIPU) to ensure that the issuer and guarantor have sufficient assets and liquidity to meet their respective obligations for the senior notes. The proceeds of the notes will be used to meet the working-capital needs and general corporate purposes of the Juda group.
The assignment of the final rating follows the receipt of documents conforming to information already received and the final rating is in line with the expected rating assigned on 20 July 2015.
KEY RATING DRIVERS
Government Linkage Uplifts Ratings: BCG's ratings benefit from a two-notch uplift, reflecting its moderately strong operational and strategic linkage with the Beijing municipal government. BCG acts as an aggregator of private capital to be channelled towards investment in public goods like subways, environmental facilities, and primary land development in the greater Beijing region, and financial services like government-guaranteed loans for SMEs and agriculture businesses in Beijing.
Standalone at 'BB+': BCG's standalone 'BB+' ratings are derived from the weighted average credit profiles of its three key business divisions - infrastructure, environment protection, and real estate. The presence of substantial minority interests in its key subsidiaries - Beijing MTR Co. Ltd in subway operations, Beijing Capital Co., Ltd. in waterworks, and Beijing Capital Land Ltd. (BCL, BB/Stable) in property - makes its access to cash flows of these subsidiaries structurally subordinated to their creditors.
However, the aforementioned subordination can be strongly offset by BCG's diversified business operations and large wholly owned asset pool. This is a result of injection by the Beijing State-owned Assets Supervision and Administration Commission (SASAC) of its wholly owned Capital Jingzhong (Tianjin) Investment Company Limited into BCG. Capital Jingzhong owns a large land bank. Furthermore, Fitch expects the ratio of the dividends/interest that BCG receives to improve gradually to 1.1x in 2015 - and further to 1.4x in 2016. The dividends and interest income will be able to fully cover its cash-interest expenses from 2015.
Growing Recurring Infrastructure Income: The infrastructure segment is backed by a strong metro operation that is expanding its investment in Beijing (BJ) subway Line 14. The expressway business is highly leveraged, but this does not lead to any major stress because it is deleveraging and generating positive FCF. Fitch estimated that the segment's EBITDA/interest coverage in 2014 was little changed from 2.7x in 2013.
Capex Pressures Waterworks: Beijing Capital Co., Ltd.'s businesses in supplying water and sewage treatment to local governments are contractually protected. However, its credit profile is constrained by high leverage due to high capex. Fitch expects its coverage ratios to weaken in the medium term, with FFO net leverage to stabilise at around 4.0x-4.5x (end-2014: 6.9x) and FFO fixed-charge coverage to hover around 2.0x-2.5x (end-2014: 2.2x).
High Property Leverage Constrains Ratings: BCL has high leverage as a result of substantial land acquisitions that entailed land premium totalling CNY19.4bn in 2014 (CNY11.7bn in 2013), which constrains its profile despite possible continued sales expansion.
KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Revenue to increase by more than 20% from 2014 to 2016
- EBITDA margin to remain stable, and improve from 2016 with a growing share of higher-margin utility-type earnings
- capex for the group to continue on its historical trend
- dividend payout ratios of subsidiaries remain unchanged.
RATING SENSITIVITIES
Positive: Developments that may, individually or collectively, lead to positive rating action include:
- Significant strengthening of the credit profiles of its three core divisions
- Any signs of strengthening linkage with the Beijing government
Negative: Developments that may, individually or collectively, lead to negative rating action include:
- BCG's dividend and interest income/interest expense coverage to fall below 1.2x from 2016 (0.91x expected for 2014)
- Failure of Capital Jinzhong to expand its business
- Substantial weakening of the credit profiles of its three core divisions
- Any signs of weakening linkage with the Beijing government
The notes are rated at the same level as BCG's senior unsecured rating, as BCG has granted a keepwell and liquidity support deed and a deed of equity interest purchase undertaking (EIPU) to ensure that the issuer and guarantor have sufficient assets and liquidity to meet their respective obligations for the senior notes. The proceeds of the notes will be used to meet the working-capital needs and general corporate purposes of the Juda group.
The assignment of the final rating follows the receipt of documents conforming to information already received and the final rating is in line with the expected rating assigned on 20 July 2015.
KEY RATING DRIVERS
Government Linkage Uplifts Ratings: BCG's ratings benefit from a two-notch uplift, reflecting its moderately strong operational and strategic linkage with the Beijing municipal government. BCG acts as an aggregator of private capital to be channelled towards investment in public goods like subways, environmental facilities, and primary land development in the greater Beijing region, and financial services like government-guaranteed loans for SMEs and agriculture businesses in Beijing.
Standalone at 'BB+': BCG's standalone 'BB+' ratings are derived from the weighted average credit profiles of its three key business divisions - infrastructure, environment protection, and real estate. The presence of substantial minority interests in its key subsidiaries - Beijing MTR Co. Ltd in subway operations, Beijing Capital Co., Ltd. in waterworks, and Beijing Capital Land Ltd. (BCL, BB/Stable) in property - makes its access to cash flows of these subsidiaries structurally subordinated to their creditors.
However, the aforementioned subordination can be strongly offset by BCG's diversified business operations and large wholly owned asset pool. This is a result of injection by the Beijing State-owned Assets Supervision and Administration Commission (SASAC) of its wholly owned Capital Jingzhong (Tianjin) Investment Company Limited into BCG. Capital Jingzhong owns a large land bank. Furthermore, Fitch expects the ratio of the dividends/interest that BCG receives to improve gradually to 1.1x in 2015 - and further to 1.4x in 2016. The dividends and interest income will be able to fully cover its cash-interest expenses from 2015.
Growing Recurring Infrastructure Income: The infrastructure segment is backed by a strong metro operation that is expanding its investment in Beijing (BJ) subway Line 14. The expressway business is highly leveraged, but this does not lead to any major stress because it is deleveraging and generating positive FCF. Fitch estimated that the segment's EBITDA/interest coverage in 2014 was little changed from 2.7x in 2013.
Capex Pressures Waterworks: Beijing Capital Co., Ltd.'s businesses in supplying water and sewage treatment to local governments are contractually protected. However, its credit profile is constrained by high leverage due to high capex. Fitch expects its coverage ratios to weaken in the medium term, with FFO net leverage to stabilise at around 4.0x-4.5x (end-2014: 6.9x) and FFO fixed-charge coverage to hover around 2.0x-2.5x (end-2014: 2.2x).
High Property Leverage Constrains Ratings: BCL has high leverage as a result of substantial land acquisitions that entailed land premium totalling CNY19.4bn in 2014 (CNY11.7bn in 2013), which constrains its profile despite possible continued sales expansion.
KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Revenue to increase by more than 20% from 2014 to 2016
- EBITDA margin to remain stable, and improve from 2016 with a growing share of higher-margin utility-type earnings
- capex for the group to continue on its historical trend
- dividend payout ratios of subsidiaries remain unchanged.
RATING SENSITIVITIES
Positive: Developments that may, individually or collectively, lead to positive rating action include:
- Significant strengthening of the credit profiles of its three core divisions
- Any signs of strengthening linkage with the Beijing government
Negative: Developments that may, individually or collectively, lead to negative rating action include:
- BCG's dividend and interest income/interest expense coverage to fall below 1.2x from 2016 (0.91x expected for 2014)
- Failure of Capital Jinzhong to expand its business
- Substantial weakening of the credit profiles of its three core divisions
- Any signs of weakening linkage with the Beijing government
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