OREANDA-NEWS. Fitch Ratings has assigned Jiangsu NewHeadLine Development Group Co., Ltd. (Jiangsu NHL) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of 'BB+'. The Outlook is Stable.

KEY RATING DRIVERS

Links to Lianyungang Municipality: The ratings of Jiangsu NHL are credit linked to Lianyungang Municipality, which is located in China's north-eastern Jiangsu Province. This is reflected in the 100% state ownership of Jiangsu NHL, strong municipal oversight of its financials, and strategic importance of the entity's operation to the municipality. These factors result in a high likelihood the municipality will provide Jiangsu NHL extraordinary support, if needed. Therefore, Jiangsu NHL is classified as a credit-linked public sector entity under Fitch Ratings' criteria.

Strategic Importance: Jiangsu NHL is an integral part of the municipality's flagship economic zone, the Lianyungang Economic and Technology Development Zone (Lianyungang ETDZ). The company plays an important role in implementing the blueprint of the Lianyungang government and Lianyungang Economic and Technology Development Zone Management Committee (Management Committee) for the zone. It is the municipality's sole entity for developing large-scale urban infrastructure projects, providing ancillary services and inviting investment and joint-venturing with outsiders on the government's behalf.

Multi-Year Public Funding Commitment: According to Jiangsu NHL, Lianyungang ETDZ is committed to providing annual fiscal funding of at least CNY400m from 2015 to Jiangsu NHL via subsidies in order to ease debt-servicing pressure, enhance financial flexibility and support capex.

Tight Control and Supervision: Board members are appointed mainly by the Lianyungang municipal government, and major projects require the municipal government's approval. Jiangsu NHL's financing plan and debt levels are closely monitored by the municipality, and the company is required to report its operational and financial results to the municipality and Lianyungang ETDZ Management Committee on a regular basis.

Weak Financial Profile: Jiangsu NHL incurred large capex, negative FCF and high leverage in the past three years. Fitch believes this trend will continue in the medium term, driven by the ongoing infrastructure investments. The extended payment period after the completion of projects and the significant account receivables due from Lianyungang ETDZ's finance department could adversely affect the company's liquidity. However, perceived strong support from Lianyungang Municipality partly neutralises such risk.

RATING SENSITIVITIES

An upgrade of Fitch's credit view on Lianyungang Municipality, as well as a stronger and/or more explicit support commitment from the municipality, may trigger positive rating action on Jiangsu NHL.

Significant weakening of Jiangsu NHL's strategic importance to the municipality, dilution of the municipality's shareholding to below 75%, and/or reduced explicit and implicit municipality support, may result in a downgrade. A downgrade could also result from a weaker fiscal performance or increased indebtedness of the municipality, leading to deterioration in the sponsor's internally assessed creditworthiness and, as a result, of Jiangsu NHL's ratings.