OREANDA-NEWS. Fitch Ratings has affirmed Beijing Infrastructure Investment Co Ltd's (BII) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A+' and Short-Term Foreign-Currency IDR at 'F1'. The Outlook of the long-term ratings is Stable.

Fitch has also affirmed the ratings on the medium term note programme, and the notes issued by Eastern Creation Investment Holdings Ltd and Eastern Creation II Investment Holdings Ltd, which are unconditionally and irrevocably guaranteed by Beijing Infrastructure Investment (Hong Kong) Limited (BII HK), a wholly owned subsidiary of BII. In place of a guarantee, BII has granted a keepwell and liquidity support deed and a deed of equity interest purchase undertaking to ensure that BII HK has sufficient assets and liquidity to meet its obligations under the guarantee for the notes. A full list of rating actions can be found at the end of this commentary.

KEY RATING DRIVERS

Linked to Beijing Municipality: BII's ratings are credit linked to that of Beijing, the capital city of China. This is reflected in BII's 100% municipal ownership, strong municipal government oversight and supervision, multi-year-funding integration with the municipal budget and strategic importance of BII's urban rail operation to the city. These factors result in a strong likelihood of extraordinary support, if needed. Therefore, BII is classified as a credit linked public sector entity under Fitch's criteria.

Beijing's Strong Creditworthiness: Beijing ranks second among all cities in China in terms of gross regional product (GRP). The municipality has a robust budgetary performance, a strong and well-diversified socio-economic profile, and a close relationship with the China sovereign (A+/Stable) owing to its status as the capital. The city's resilient property market also strengthens the municipality's fiscal flexibility. These strengths are mitigated by its moderately high municipal related debts, contingent liabilities arising from its public sector entities.

Strategic Importance: BII is the sole urban rail transport operator of Beijing Municipality and, as such, executes the municipality's rail transportation policy. Underground rail transport has become the key solution in solving the city's traffic problems. Therefore, BII is integral to the functioning and sustainable development of Beijing Municipality.

Standalone Credit Profile: Given the public service nature of its activities and high leverage, the standalone credit profile of BII is weaker than its present rating level. Still, its strong strategic link to Beijing and oversight are reflected in a top-down ratings approach as Fitch sees a strong likelihood of BII getting extraordinary state support, if needed.

Multi-Year Public Funding Commitment: BII receives ongoing municipal subsidies to cover operating deficits because of its major role in Beijing's urban transport system that renders it "socially necessary". The municipality is committed to providing CNY15.5bn a year in capital grants from 2013-2035 to cover BII's funding needs for its rail network expansion plan and subsidies. Approximately 40% of BII's capex is funded by the capital injection of Beijing Municipality.

Tight Control and Supervision: BII's rail network development plan needs approval from the central government's National Development and Reform Commission. BII's financing plan and debt level are also closely monitored by the municipality. BII is also required to report its operational and financial results to the municipality on a regular basis.

RATING SENSITIVITIES
Linkage With Municipality: Significant changes to BII's strategic importance, a diluted municipal shareholding to below 75%, and/or reduced explicit and implicit municipality support, could lead to a wider rating gap between BII and Beijing Municipality.

Creditworthiness of Municipality: A negative rating action could also stem from a weaker fiscal performance and/or more heightened indebtedness of the municipality. This could lead to a lowering of Fitch's internal assessment of Beijing's creditworthiness and, as a result, of BII's ratings.

The full list of rating actions is as follows:

BII
Long-Term Foreign-Currency IDR affirmed at 'A+'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'F1'
Long-Term Local-Currency IDR affirmed at 'A+'; Outlook Stable

Eastern Creation Investment Holdings Ltd.
USD300m 3.625% senior unsecured notes due 2019 affirmed at 'A+'

Eastern Creation II Investment Holdings Ltd.
USD6bn medium term note programme affirmed at 'A+'
CNY1.2bn 3.75% senior unsecured notes due 2017 affirmed at 'A+'
USD700m 2.625% senior unsecured notes due 2017 affirmed at 'A+'
USD300m 3.25% senior unsecured notes due 2020 affirmed at 'A+'
EUR500m 1% senior unsecured notes due 2018 affirmed at 'A+'