Jiuzhong Financial News, March 25, Fitch will Yunnan Urban Construction Investment Group Co., Ltd. (Yunnan Metropolitan Construction Investment Group Co., Ltd., hereinafter referred to as "Yunnan City InvestmentThe default rating (IDR) of long-term local and foreign currency issuers was downgraded from "BBB" to "BBB-". Look forward to "negative".
Fitch also downgraded Yunnan City Investment Group's $800m, 5.5 per cent coupon senior unsecured bond from "BBB" to "BBB-" due in 2022. The note is issued by Caiyun International Investment Co., Ltd. (Caiyun International Investment Limited), a wholly-owned subsidiary of Yunnan City Investment Group. Yunnan City Investment Group provides unconditional and irrevocable guarantee for the note. The above notes constitute the direct, unconditional, non-subprime and unsecured debt of Yunnan Urban Investment Group and are on an equal footing with all its current and future debts.
Fitch downgraded the "legal status, government ownership and control" rating factor from "very strong" to "strong" based on its government-related entity (GRE) rating criteria. Yunnan City Investment Group is currently wholly owned by the Yunnan provincial government, but China Poly Group Co., Ltd. plans to participate in the mixed ownership reform of Yunnan City Investment Group. Fitch believes that it is uncertain whether Yunnan City Investment Group will continue to be fully owned by the Yunnan government. In addition, the senior management of China Poly has been appointed chairman of Yunnan City Investment Group. Fitch believes that the Yunnan government's control over Yunnan City Investment Group is decreasing.
The negative outlook takes into account whether the Yunnan government has the motivation to provide special support to the business-oriented enterprises of Yunnan City Investment Group when it is not entirely owned by the government. This could lead Fitch to shift its rating methodology from top-down to bottom-up.
Yunnan City Investment Group's rating is based on Fitch's GRE rating criteria, reflecting the entity's "strong" government control, a "medium" record of government support, and the "medium" social and "strong" financial impact of defaults.
Key rating drivers
Legal status, government shareholding and control are "strong":Yunnan City Investment Group is controlled by the Yunnan provincial government, which appoints members of the company's board of directors. Major events, including strategic development, acquisitions, disposal, long-term plans and major capital expenditures, require government approval, and the government is also responsible for supervising the company's operations and financing activities. However, Fitch expects the Yunnan provincial government's control over Yunnan City Investment Group to be weakening.
The previous and expected support of the government is "medium":The company was founded in 2005 and has received more than 10 billion yuan from the government by the end of 2018. This accounts for less than 10% of its total assets. In 2018, the company also received a government subsidy of 300 million yuan.
The social impact of default is "moderate":Yunnan City Investment Group conducts first-level land development, real estate development, shantytown reconstruction, medical care, education, trade, water supply, sewage treatment and tourism. The company's commercial business can be replaced by other public and private companies. The company's default will have a "moderate" social impact.
Financial impact of default is "strong":Yunnan City Investment Group is one of the largest government-related entities in the province, obtaining large amounts of loans from banks, financial institutions and debt capital markets at home and abroad.
"b +" independent credit status:The independent credit status (SCP) of Yunnan City Investment Group is assessed according to Fitch's rating Standard for Public sector Revenue support entities. Revenue defensibility and operating risk are assessed as "medium" because the company's revenue has grown significantly over the past three years and its operating cost drivers are identifiable (identifiable). The company's financial position was assessed as "weak" because of its high leverage ratio; at the end of 2018, net debt / EBITDA was more than 12 times.
Summary of rating derivation
Yunnan City Investment Group's rating is based on Fitch's Government related entities (GRE) rating criteria, reflecting the entity's legal status, government shareholding and control, government support of "medium", the social impact of default "medium" and the financial impact of default "strong". These factors suggest that the government is likely to provide special support to Yunnan City Investment Group if necessary.
Yunnan City Investment Group's issuer default rating is based on four factors under the above rating criteria, as well as the "b +" independent credit status under Fitch's Public sector income support entity rating Standard.
Rating sensitivity
If Fitch changes its view on Yunnan's ability to provide subsidies, subsidies or other legal resources allowed by Chinese policies and regulations, Yunnan City Investment Group's rating may be adjusted.
If the social and financial impact of default weakens, the record and willingness of the government to provide support weakens, or if the government's shareholding is diluted, then Yunnan City Investment Group's rating may be downgraded.
If Fitch believes that the motivation of the Yunnan provincial government to control and support Yunnan City Investment Group remains firm, then the group's outlook may be adjusted to "stable".
The adjustment of the independent credit status of Yunnan Urban Investment Group will also affect its rating.
Any adjustment of the default rating of the issuer of Yunnan City Investment Group will lead to a similar adjustment of the bill rating.