OREANDA-NEWS. Fitch Ratings has assigned Changchun Urban Development & Investment Holdings (Group) Co. Ltd (CCDG) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of 'BBB+'. The Outlook is Stable.

KEY RATING DRIVERS

CCDG is credit-linked to Changchun Municipality. This is reflected in CCDG's 100% government ownership, strong municipal oversight on its financials and operations, integration with the government's general account and strategic importance of the entity's operation to the municipality. These factors result in a strong likelihood of extraordinary support to CCDG from the municipality, if needed.

Changchun municipality, as the capital of Jilin Province, has a good budget performance, diversified socio-economic profile and strategic importance as a key hub in north-east China. The city's resilient local property market also strengthens the municipality's fiscal flexibility. The strengths are mitigated by its moderately high tax-supported municipal debts and relatively weak transparency and information disclosure.

CCDG is the largest integrated platform and strategic arm of Changchun Municipality, which uses the company to develop key municipal infrastructure projects, for primary development of land, to build social affordable housing and to provide water supply and sewage treatment. It has an important role in implementing the city's development blueprint draw up by the municipal government.

The Changchun municipal government has been injecting the city's major urban development companies and water supply company into CCDG since it was established in 2013. The municipal government is also committed to provide CNY9bn a year through government purchase or subsidies for provision of underground pipeline services by CCDG as well as around CNY120m in annual water supply subsidies. Fitch believes that CCDG's debt will be ultimately serviced by the municipal government via subsidies and capital injection.

CCDG's board members are appointed by the Changchun Municipality; and its major projects need government approval. The group's financing plan and indebtedness level are closely monitored by the municipality. CCDG is also required to report to the government its operational and financial results on a regular basis.

CCDG's financial profile in the last three years was characterised by sizeable capital expenditure, negative free cash flow and high leverage. Fitch believes this trend will continue in the medium term, driven by the ongoing infrastructure development in Changchun Municipality, and the company will continue to receive to subsidies and/or capital injections from the municipality. Fitch expects Changchun municipal government to continue providing financial support to CCDG.

RATING SENSITIVITIES

An upgrade of Fitch's credit view on Changchun Municipality as well as a stronger or more explicit commitment of support from the municipality may trigger a positive rating action on CCDG.

Significant weakening of CCDG's strategic importance to the municipality, dilution of the municipality's shareholding, and/or reduced explicit and implicit municipality support, may result in a downgrade. A downgrade could also stem from weaker fiscal performance or increased indebtedness of the municipality, leading to deterioration in the municipality's creditworthiness.