Fitch Ratings-Hong Kong-January 20:
Fitch has affirmed Shandong High-speed Group Co., Ltd.'s (SHS) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) of 'A'. The Outlook is Stable. Fitch also affirmed SHS's USD900 million 4.3% senior guaranteed perpetual securities at 'A-'. The securities are unconditionally and irrevocably guaranteed by SHS and issued by Coastal Emerald Limited - a special-purpose vehicle incorporated in the British Virgin Islands.
SHS's ratings are linked to, but not equalised with, Fitch's internal assessment of the creditworthiness of China's Shandong province. The linkage reflects the province's full ownership of the group as well as significant provincial control, record of government support and the socio-political and financial consequences for the government should SHS default. These factors result in a high likelihood of extraordinary government support for SHS, if needed.
SHS is a provincial-level government-related entity that operates around 40% of Shandong's toll-road network. SHS has a diversified portfolio and also engages in railway operation and construction, financial services, merchandising, construction and property development.
Key Rating Drivers
'Very Strong' Status, Ownership and Control: SHS is registered as a state-owned limited-liability company under Chinese corporate law. It is 70% owned by the Shandong State-owned Assets Supervision and Administration Commission, 10% by Shandong Provincial Council for Social Security Fund and 20% by Shandong Guohui Investment Co., Ltd. (BBB+/Stable); despite the shareholding structure, SHS is directly controlled and monitored by the Shandong government, while the Shandong Transportation Bureau overseas its transportation investment and construction segment.
'Moderate' Government Support: SHS has concession rights to operate around 40% of the province's toll roads and has sole railway development rights. It received government net capital injections totalling CNY12.5 billion in 2011-2018, which made up 2% of the group's total assets and 7% of net assets as at end-2018. SHS also expects a government injection for its toll-road infrastructure projects in 2020. However, capital injections are irregular. Subsidies have been steadily increasing, but remain small compared with SHS's net income, at around 12% in 2018.
'Strong' Socio-Political Implications of Default: SHS is an important provincial state-owned enterprise that constructs and manages transportation infrastructure in Shandong. Its businesses scope includes toll-road and port operation, railway development, logistic, construction and financial services through bank and property-insurance subsidiaries. It was also used by the provincial government to stabilise the regional economy during the 2008 global financial crisis. We believe SHS's default would have political and economic repercussions for Shandong, as its wide-ranging businesses affect the province's daily operation and it cannot be immediately substituted by other entities.
'Very Strong' Financial Implications of Default: The group was the largest government-related entity in Shandong by total assets and total debt as 1H19, according to Wind Info. SHS has acted as the province's funding agency since 2008, when it provided funding for small state-owned enterprises. It has also participated in China's One-Belt-One-Road initiative by investing in overseas projects. It is also a repeat offshore bond issuer and is well known by domestic and offshore investors. A default by SHS would significantly damage the creditworthiness of Shandong province, which would increase its funding costs and limit the province's borrowing ability.
'b' Standalone Credit Profile: Fitch assesses SHS's Standalone Credit Profile (SCP) at 'b' under its Public Sector, Revenue-Supported Entities Rating Criteria using partial financial statements that deconsolidate WeiHai City Commercial Bank Co., Ltd. and Taishan Property Casualty Insurance Co., Ltd., which are provided by the issuer. We expect net adjusted debt/Fitch-calculated EBITDA to remain steady at 22x in 2023, and assess SHS's revenue defensibility and operating risk as 'Midrange' and its financial profile as 'Weaker'. Fitch-calculated net adjusted debt/Fitch-calculated EBITDA rose to 21x in 2018 (2017:16x) on higher debt, while capex was mildly scaled back from 2019 on lower railway investment.
RATING SENSITIVITIES
A revision of Fitch's perception of Shandong's ability to provide subsidies, grants or other legitimate resources allowed under China's policies and regulations would lead to a change in ratings, as would a change in Fitch's internal credit view of Shandong province.
A downgrade may result from a significant weakening of the linkage between SHS and Shandong province that leads to a reassessment of status, ownership and control, support record and expectations as well as the socio-political and financial implications of a default by SHS.
An upgrade may result from a significantly improved support record and expectations or a change in business scope that leads to a higher assessment of the social-political implications of default by SHS.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.
For more information on our ESG Relevance Scores, visit
Coastal Emerald Limited
----senior unsecured; Long Term Rating; Affirmed; A-
Shandong High-speed Group Co., Ltd.; Long Term Issuer Default Rating; Affirmed; A; RO:Sta
----; Local Currency Long Term Issuer Default Rating; Affirmed; A; RO:Sta
Contacts:
Primary Rating Analyst
Lorraine Liu,
Associate Director
+852 2263 9929
Fitch (Hong Kong) Limited
19/F Man Yee Building 60-68 Des Voeux Road Central
Hong Kong
Secondary Rating Analyst
Terry Gao, CFA, CPA
Senior Director
+852 2263 9972
Committee Chairperson
Vladimir Redkin,
Senior Director
+7 495 956 2405
Media Relations: Alanis Ko, Hong Kong, Tel: +852 2263 9953, Email: alanis.ko@thefitchgroup.com; Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@thefitchgroup.com.
Additional information is available on
Applicable Criteria
Corporate Hybrids Treatment and Notching Criteria (pub. 11 Nov 2019)
Government-Related Entities Rating Criteria (pub. 13 Nov 2019)
Public Sector, Revenue-Supported Entities Rating Criteria (pub. 07 Nov 2019)
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
Copyright 2020 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001
Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see
