Fitch: Guangdong Sees Traffic Growth, Despite China-Wide Decline

Shenzhen Investment Holdings Bay Area Development

01/09/2016 04:09

(The following statement was released by the rating agency)

HONG KONG, August 31 (Fitch) China's Guangdong province recorded 4% passenger 
turnover growth in the first seven months of 2016, compared with a nation-wide 
decline of -6%, says Fitch Ratings. The province also saw a 7% increase in 
freight turnover against a national average of 4%. The above-average growth 
reflects Guangdong's importance as China's major trading and manufacturing hub.

We expect traffic growth of Fitch-rated southern-China expressway operators to 
remain solid, with passenger-traffic acting as the key driver due to increasing 
passenger-vehicle ownership and low oil prices. According to the China 
Association of Automobile Manufacturers, passenger-vehicle sales volume 
increased 11% yoy in the first seven months of 2016, which Fitch believes was 
due to the tax benefits offered by the central government on passenger-vehicles 
since October 2015.

We expect EBITDA margins of Fitch-rated expressway operators to remain stable at 
around 75%, with China's tariff policy remaining unchanged in the near-term and 
small increases in operating expenses.

Shenzhen Expressway Company Limited (SZE, BBB/Stable) benefits from its 
strategic position in Guangdong, with eight out of nine consolidated expressways 
located in the province. The company recorded 17% yoy traffic growth in the 
first seven months of 2016, as did Yuexiu Transport Infrastructure Limited's 
(YXT, BBB-/Stable) GNSR Expressway, which is also located in Guangdong. Other 
listed expressway operators with a large exposure to the province, including 
Hopewell Highway Infrastructure Limited and Guangdong Provincial Expressway 
Development Co., Ltd, saw traffic growth of over 10%.

Factoring in SZE's Shenzhen Outer Ring Road Project and Meilin Checkpoint Urban 
Renewable Project, we expect the company's FFO-adjusted net leverage to remain 
below 2.0x and its FFO fixed-charge coverage to stay at 4.0x in 2016-2019. While 
no details are provided, SZE is looking for investment opportunities in the 
environmental protection sector and could potentially develop it as its 
second-core business. Any new investments - depending on size, profitability and 
financing arrangements - could affect the company's key credit metrics. 

YXT is on track to improving its debt-structure by reducing secured debts, with 
the company's secured debts falling from CNY5.4bn at end-2015 to CNY4.7bn at 
end-1H16 (adjusted for secured loans held by a disposable asset - Yue Xin 
Chishui Terminal Company Limited). Fitch expects YXT's FFO-adjusted net leverage 
to improve overtime from 5.9x in 2015, returning to below Fitch's negative 
rating guideline of 5.5x in 2017 or 2018, barring any major acquisitions. 

Contact:

Cecilia Chan

Associate Director

+852 2263 9905

Fitch (Hong Kong) Limited

19/F Man Yee Building

68 Des Voeux Road Central

Hong Kong

Edwin Lam

Director

+852 2263 9975

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@fitchratings.com.

Additional information is available on www.fitchratings.com

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