Fitch Ratings has affirmed
The Outlook on the IDR is Stable.
CCCC, a leading transportation infrastructure construction company in
CCCC accounted for the majority of
CCCC's IDR is notched down twice from the sovereign's IDR, in line with the top-down approach in our criteria, to reflect CCCC's strong operational and strategic ties with the Chinese government. The Stable Outlook reflects Fitch's expectation of continued state support for CCCC from the Chinese government. We assess the company's Standalone Credit Profile (SCP) at 'b+'.
Key Rating Drivers
Strong Ownership: Fitch has assessed CCCC's status, ownership and control as 'Strong'. CCCC was 59.63% owned by
Moderate Support Record: Fitch has assessed the record of state support to CCCC as 'Moderate'. The state has been supportive of CCCC's operations with regular government subsidies and preferential tax rates. However, we believe the level of support has been moderate as CCCC's financial leverage has remained high for a sustained period. We expect CCCC's leverage to remain elevated in the medium term as it continues to invest in public-private-partnership (PPP) and build-operate-transfer (BOT) projects although the investment amounts are declining.
Strong Support Incentive: Fitch has assessed the socio-political implications from a default by CCCC as 'Strong'. A default would disrupt construction of
Strategic E&C Position: CCCC maintained its monopoly of
PPP Investments Drive Leverage: We reassessed CCCC's SCP at 'b+' from 'bb-', reflecting our expectation of higher leverage and weaker interest coverage over 2023-2026 than in the last few years. CCCC's consolidated net debt/EBITDA rose to 10.9x in 2022 from 9.2x in 2021 while EBITDA interest coverage fell to 1.9x from 2.2x. This was due to a combination of increased debt for funding PPP and BOT projects and an EBITDA decline caused by higher costs on subcontracting and a larger revenue share from low-margin E&C projects.
We expect CCCC to continue with its PPP investments in the next few years given the abundant PPP projects in the pipeline, although the company is seeking to slow its execution on the projects, which will result in sustained negative free cash flow and rising leverage in the medium term. We also expect EBITDA interest coverage to remain below 2.0x over 2023-2026.
Strong Backlog Supports Revenue: We expect CCCC's revenue to grow at a mid-single-digit rate over 2023-2026, driven by E&C projects with lower margins but better cash generation than investment projects. This is also supported by CCCC's ample order backlog of about
Derivation Summary
CCCC's IDR of 'A-', which is notched down two levels from
CCCC's 'Moderate' support track record assessment is lower than that of CRG as CCCC has a weaker financial profile with higher leverage than CRG.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Revenue growth of 5.7%-6.8% in 2023-2026 (2022: 5.1%)
EBITDA margin of around 6.9%-7.2% in 2023-2026 (2022: 7.3%)
Capex of
Net investment cash outflow of
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive rating action on the Chinese sovereign.
Strengthening of likelihood of support from the Chinese government.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative rating action on the Chinese sovereign.
Weakening of likelihood of support from the Chinese government.
For the sovereign rating of
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Public Finances: A sustained upward trajectory in government debt/GDP or a rise of contingent liabilities, such that debt levels compare less favourably with rated peers.
Macro: The recurrence of abrupt policy shifts that undermine economic performance and keep growth volatility at elevated levels.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Structural Features: A material reduction in macro-financial risks and associated contingent liabilities facing the sovereign, for example, by maintaining credit growth below nominal GDP growth over a multi-year period, which would cause the removal of the -1 QO notch on Structural Features.
External Finances: Widespread adoption of the Chinese yuan as a reserve currency, as reflected in a substantial increase in the share of yuan-denominated claims in the
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate Liquidity: CCCC's liquidity remained sufficient at end-2022 with around
Issuer Profile
CCCC is a leading global transportation infrastructure construction and investment group. It is engaged in a wide range of projects, including highways, bridges, tunnels, railways, subways, marine ports and airports. The company also provides dredging services with the largest dredging fleet in
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
CCCC's ratings are linked to
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means 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 Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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