Fitch Affirms China State Construction International at 'BBB+'; Outlook Stable

China State Construction International Holdings

21/01/2020 07:33

(The following statement was released by the rating agency)


Fitch Ratings-Hong Kong-January 21: 

Fitch Ratings has affirmed China State Construction International Holdings 
Limited's (CSCI) Long-Term Issuer Default Rating (IDR) and senior unsecured 
rating at 'BBB+'. The Outlook for the IDR is Stable. 

Key Rating Drivers

Rating Linked to Parents: The affirmation reflects Fitch's assessment of the 
credit profile of CSCI's parents and its strong linkages with its parents; CSCI 
is 65%-owned by China Overseas Holdings Limited (COHL), which is in turn wholly 
owned by China State Construction Engineering Corporation Ltd (CSCECL, 
A/Stable). COHL's credit profile is supported by its largest subsidiary, China 
Overseas Land  Investment Limited (COLI, A-/Stable). COLI's ratings are 
supported by its continued strong performance and strategic importance to 
CSCECL. The Stable Outlook reflects Fitch's expectation that CSCI will maintain 
strong linkages with its parents.

Strategic Importance of CSCECL: CSCECL has strong operational and strategic ties 
with the central government of China (A+/Stable) and is 56% indirectly owned by 
the State-owned Assets Supervision and Administration Commission. CSCECL is the 
largest state-owned enterprise engaged in construction in China. It is also the 
country's largest builder of social housing.

Strong Linkage with Group: CSCI has close operational linkages with its parent 
companies and strong legal ties - through financing agreements - with the group. 
It is positioned as the parents' vehicle for infrastructure operation and 
investment. CSCI is also the parents' key platform for the construction of 
social housing.

Increasing Diversification: The company's expansion into public-private 
partnership projects in China has driven its growth, but has also contributed to 
its higher leverage. CSCI now plans to focus on projects in Hong Kong, Macau and 
China, with faster capital turnover, according to management. Fitch forecasts 
total sales will increase by 4% to HKD58 billion in 2019, as sales growth in 
Hong Kong offsets a decline in sales in China. Sales in Hong Kong already 
increased by 34% yoy in 1H19 and new contracts saw a similar shift, with cash 
construction and related new contracts up by 39% yoy to HKD31 billion, while 
infrastructure investment contracts declined by 37% yoy to HKD25 billion.

Derivation Summary

CSCI's rating is derived from its operational and legal linkage with its parent 
and ultimate parent, and reflects Fitch's assessment of the credit profile of 
its parents. Its final rating is not derived from its Standalone Credit Profile 
and thus, is not comparable with industry peers.

Key Assumptions

Fitch's key assumptions within our rating case for the issuer include:

- Revenue growth at a 2020-22 CAGR of 3% (2019: 4%)

- Stable EBITDA margin at 13%-14% in 2020-2022 (2019: 13.8%)

RATING SENSITIVITIES

Developments that May, Individually or Collectively, Lead to Positive Rating 
Action

- Improvement in the credit profiles of CSCI's parents

- Stronger linkages between CSCI and its parents

Developments that May, Individually or Collectively, Lead to Negative Rating 
Action

- Weakening of the credit profiles of CSCI's parents

- Weaker linkages between CSCI and its parents

Liquidity and Debt Structure

Sufficient Liquidity: CSCI had HKD21 billion in readily available cash at end 
1H19 against short-term debt of HKD7 billion. We expect the company's cash on 
its balance sheet and undrawn bank facilities of HKD38 billion to provide more 
than adequate liquidity.

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 www.fitchratings.com/esg

China State Construction International Holdings Limited; Long Term Issuer 
Default Rating; Affirmed; BBB+; RO:Sta

----senior unsecured; Long Term Rating; Affirmed; BBB+

China State Construction Finance (Cayman) II Limited

----senior unsecured; Long Term Rating; Affirmed; BBB+

Contacts: 

Primary Rating Analyst

Joseph Fong, 

Director

+852 2263 9922

Fitch (Hong Kong) Limited

19/F Man Yee Building 60-68 Des Voeux Road Central

Hong Kong

Secondary Rating Analyst

Charles Zhang, 

Associate Director

+852 2263 9994

Committee Chairperson

Laura Zhai, 

Senior Director

+852 2263 9974

 

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 www.fitchratings.com

Applicable Criteria 

Corporate Hybrids Treatment and Notching Criteria (pub. 11 Nov 2019)

https://www.fitchratings.com/site/re/10100477

Corporate Rating Criteria (pub. 19 Feb 2019)

https://www.fitchratings.com/site/re/10062582

Corporates Notching and Recovery Ratings Criteria (pub. 14 Oct 2019)

https://www.fitchratings.com/site/re/10090792

Parent and Subsidiary Rating Linkage (pub. 27 Sep 2019)

https://www.fitchratings.com/site/re/10089196

Sector Navigators (pub. 23 Mar 2018)

https://www.fitchratings.com/site/re/10023790

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/site/dodd-frank-disclosure/10108264

Solicitation Status 

https://www.fitchratings.com/site/pr/10108264#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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