Fitch Places Shenzhen International's 'BBB' IDR on Rating Watch Negative

Shenzhen International Holdings

24/02/2020 05:21

(The following statement was released by the rating agency)


Fitch Ratings-Hong Kong-February 24: 

Fitch Ratings has placed Shenzhen International Holdings Limited's (SZIH) 
Long-Term Issuer Default Rating (IDR) on Rating Watch Negative (RWN) on higher 
revenue risk and regulatory uncertainty. This follows the Chinese authorities' 
decision to suspend toll collections for the country's road network. 

RATING RATIONALE

Fitch rates SZIH based on the combined credit profile of its toll-road and 
logistics businesses. The toll business is operated by SZIH's majority owned 
subsidiary, Shenzhen Expressway Company Limited (SZE, BBB/Stable).

We believe that an extended period of no toll revenue without timely 
compensation will weakens SZE's Standalone Credit Profile and, in turn, SZIH's 
consolidated profile, given that the toll-road business is the major contributor 
to operating cash flow. The damage will ultimately depend on the duration of the 
toll-free policy and the value and timing of any compensation provided by the 
government, all of which remain unclear. 

The toll suspension is part of the government's efforts to expedite the 
resumption of business and recovery of supply chains in the wake of the COVID-19 
novel coronavirus outbreak. The Ministry of Transport said the suspension took 
effect from midnight on 17 February 2020 and will remain in place until the end 
of China's coronavirus containment measures. The ministry has indicated that 
there will be compensation available for toll-road operators, but no details 
have been communicated to stakeholders. We believe compensation may be in the 
form of an extension of concession tenors so that no immediate financial burden 
is added to the government, which already faces heightened fiscal pressure from 
the economic effects of the epidemic, in light of the unprecedented scale of the 
toll suspension. Other forms of soft relief measures might also be made 
available to toll road operators, such as low-cost funds, tax incentives, 
deferring interest payments and fast-track special bond issuance. 

Fitch believes SZIH has robust liquidity, as it has abundant cash on hand, 
undrawn bank facilities and adequate access to funding sources compared with its 
operating costs and debt servicing requirements during the toll-free period.

We will resolve the RWN once we have more visibility on the relief package 
provided by the government, which could take more than six months.

KEY RATING DRIVERS

See the rating action commentary 'Fitch Upgrades Shenzhen International to 
'BBB'; Outlook Stable' at www.fitchratings.com for an overview of SZIH's credit 
profile, including key rating drivers.

RATING SENSITIVITIES

Developments that may, individually or collectively, lead to negative rating 
action:

- A increase in projected five-year average net debt/EBITDA leverage to greater 
than 4.5x for a sustained period in the Fitch rating case, provided linkages 
between SZIH and SIHC remain unchanged

- Weakening of linkages between SZIH and SIHC

- Deteriorating liquidity profile outlook

To Resolve the RWN: 

Fitch will resolve the RWN once we have more visibility on the relief package 
that is made available to the company by the government, which could take more 
than six months.

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 ratings, either due to their nature or to the way in which 
they are being managed by the entity.

Shenzhen International Holdings Limited; Long Term Issuer Default Rating; Rating 
Watch On; BBB; RW: Neg

Contacts: 

Primary Rating Analyst

Sunny Huang, CPA

Associate Director

+852 2263 9979

Fitch (Hong Kong) Limited

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

Hong Kong

Secondary Rating Analyst

Louis Pang, FRM

Senior Analyst

+852 2263 9992

Committee Chairperson

Sajal Kishore, 

Senior Director

+65 6796 7095

 

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 

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

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

Rating Criteria for Infrastructure and Project Finance (pub. 27 Jul 2018)

https://www.fitchratings.com/site/re/10038532

Toll Roads, Bridges and Tunnels Rating Criteria (pub. 30 Jul 2018)

https://www.fitchratings.com/site/re/10038900

Additional Disclosures 

Solicitation Status 

https://www.fitchratings.com/site/pr/10111880#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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