Fitch Rates Qingdao City Construction's USD Perpetuals 'BBB(EXP)'
The securities will be issued by its wholly owned subsidiary Hongkong International (Qingdao) Company Limited (HIQC). The bond proceeds will be for general corporate use.
The final rating is contingent upon the receipt of final documents conforming to information already received.
KEY RATING DRIVERS
The proposed perpetual securities are rated one notch below QCCI's 'BBB+' Issuer Default Rating to reflect its coupon deferral feature. Despite the perpetual nature of the securities, Fitch considers the effective maturity of the securities as finite value, which is linked to the moment of step-up of the coupon as the company could have a call option in this case - three years after the issuing of the notes.
QCCI ratings are credit-linked to but not equalised with those of Qingdao Municipality. This is based on the municipality's 100% ownership of QCCI and strong oversight on its financial and operational activities, as well as QCCI's strategic importance to and fiscal support from the municipality. These factors underpin a strong likelihood of extraordinary support, if needed. Therefore, QCCI is classified as a credit-linked public sector entity under Fitch criteria.
In place of a guarantee, QCCI has granted a keepwell deed, a deed of equity interest purchase undertaking and an irrevocable cross-border US dollar standby facility agreement to ensure that HIQC has sufficient assets and liquidity to meet its obligations under the senior perpetual securities.
Fitch expects to accord no equity credit to the proposed securities in its evaluation of QCCI's capital structure and leverage as this instrument ranks pari passu with QCCI's senior unsecured obligations.
A credit analysis of QCCI is available on the Fitch website at www.fitchratings.com.
RATING SENSITIVITIES
The rating of the proposed senior perpetual capital securities will mirror any change of the QCCI's IRD.
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