HONG KONG, November 23 – Fitch Ratings has affirmed Tianjin Free Trade Zone Investment Holding Group Co., Ltd.’s (Tianjin FTZIH) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘BBB+’ with a Stable Outlook.
A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS Links to Tianjin Municipality: Tianjin FTZIH’s ratings are credit-linked to Fitch’s internal assessment of China’s Tianjin Municipality, the company’s sponsor.
The municipality fully owns Tianjin FTZIH, has strong oversight of the company’s financial performance, and the company is of strategic importance to the municipality. These factors result in a strong likelihood of extraordinary support from the municipality to the company, if needed.
Therefore, Tianjin FTZIH is classified as a credit-linked public-sector entity under Fitch’s criteria. Tianjin’s Strong Creditworthiness: Tianjin municipality has a satisfactory budget performance, diversified socio-economic profile and strategic importance as one of the two core cities in the Bohai Rim Economic Zone in northern China.
Tianjin’s tax base is derived from a relatively diversified economy. Strategic Importance Assessed at Stronger: Tianjin FTZIH is an integrated body of Tianjin Municipality’s flagship economic development zone – Tianjin Port Free Trade Zone (Tianjin Port FTZ) – and plays an important role in implementing the Tianjin government and Tianjin Port Free Trade Zone Administration Committee’s (Tianjin FTZAC) blueprint for Tianjin Port FTZ.
Tianjin FTZIH is the sole entity developing large-scale urban infrastructure projects, providing utilities services, and inviting investment and forming joint ventures with outside parties on the government’s behalf. In 2016, Tianjin FTZIH declared CNY1,680 million in dividends to its shareholders, or 18% of its revenue.
Legal Status Assessed at Mid-Range: Tianjin FTZIH is registered as a state-owned limited liability company under Chinese company law, yet it is subject to bankruptcy procedure.
It is wholly owned by Tianjin FTZAC and is directly under the supervision and control of Tianjin State-owned Assets Supervision and Administration Commission and supervised by the Tianjin government. Control Attribute Assessed at Stronger: The company’s board members are mainly appointed by the Tianjin municipal government and its major projects need the municipal government’s approval.
The company’s financing plan and debt level are also closely monitored by the municipality. Tianjin FTZIH is required to report its operational and financial results on a regular basis to the Tianjin municipal government and Tianjin FTZAC.
Integration Attribute Assessed at Stronger: Tianjin FTZAC provides funding to the company through subsidies or capital injections to ease the company’s debt servicing pressure, enhance its financial flexibility and support its capex.
Fitch expects revenue from the public sector to continue to account for about 25% of income and capital subsidies to be provided to Tianjin FTZIH, alongside past year contributions, to complement internal sources and borrowing.
Moderate Financial Profile: Tianjin FTZIH’s financial profile has been characterised by sizeable capital expenditure and high leverage in the past three years. Fitch believes this trend will continue in the medium term, driven by the ongoing infrastructure improvement in Tianjin Port FTZ. RATING SENSITIVITIES An upgrade of Fitch’s internal credit assessment of Tianjin Municipality as well as a stronger and/or more explicit support commitment from the municipality may trigger a positive rating action on Tianjin FTZIH.
Significant weakening of Tianjin FTZIH’s strategic importance to the municipality, dilution of the government’s shareholding, and/or weaker linkage with Tianjin Municipality, 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 the sponsor’s internally assessed creditworthiness.
The full list of rating actions is as follows: Tianjin Free Trade Zone Investment Holding Group Co., Ltd.
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