OREANDA-NEWS. Fitch Ratings has published China-based Shaoxing City Investment Group Limited's (SCIG) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'BBB+' with a Stable Outlook.

KEY RATING DRIVERS

Links to Shaoxing Municipality: SCIG's ratings are credit linked but not equalised to Fitch's internal assessment of the creditworthiness of Shaoxing Municipality. This reflects the group's 100% ownership by the municipality, the municipality's oversight of SCIG's financials, and the strong policy role of the group's public-sector business. These factors result in a high likelihood of extraordinary support from the municipality, if needed.

Shaoxing's Strong Creditworthiness: Shaoxing is in Zhejiang province, one of the strongest economic regions in China. Shaoxing's gross regional product (GRP) and GRP per capita are higher than the average of all prefecture-level municipalities in China. Shaoxing Municipality has a strong fiscal budget performance, diversified socio-economic profile and strategic location at the centre of the Yangtze River Delta economic zone, one of China's top three economic zones.

Strategic Importance: SCIG is the major urban infrastructural investment platform of Shaoxing Municipality, and it plays an important role in implementing Shaoxing's blueprint for urban development. SCIG has been mandated by the government to construct Shaoxing Sports Centre, Shaoxing Cultural centre, social affordable houses, municipal roads and various urban redevelopment projects.

Close Integration with Municipality: Shaoxing Municipality has commissioned SCIG to develop various urban infrastructure projects - 97% of the company's assets are government projects. The municipal government has also provided strong fiscal support to SCIG for most of the projects. It provided SCIG with CNY1.99bn in government subsidies and CNY2.75bn in capital injections in 2012-2014. In 2014, the municipal government also granted primary land development rights to SCIG as a form of subsidy.

Tight Control and Supervision: SCIG's strategic direction is determined by the Shaoxing municipal government. SCIG's directors and senior management are mainly appointed by the municipal government and its major decisions require the government's approval. Its financing plan and indebtedness level are also closely monitored by the municipality. In addition, SCIG is required to report its operational and financial results to the municipality on a regular basis.

Moderate Financial Profile: SCIG's ability to generate profit is still weak, and it relies heavily on government subsidies even though its revenue is increasing. Fitch expects the company's capex and leverage to continue to be high in the medium term trend, driven by ongoing urban infrastructure development as mandated by Shaoxing Municipality. Nevertheless, Fitch expects the municipal government's monetary and non-monetary support and the company's diversified funding channels to partly offset this risk.

RATING SENSITIVITIES

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

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