On 1 December, Fitch confirmed Shandong Hi-Speed Holdings Group Limited ("Shandong Hi-Speed Holdings", 00412).HK) has a long-term foreign currency and local currency Issuer Default Rating (IDRS) of "A-". The outlook is stable.
Fitch also confirmed a coupon rate of 395% of the US$200 million senior unsecured notes due May 2024 with an "A-" rating. The bonds were issued under the medium-term note programme, and Shandong Hi-Speed Group Co., Ltd., the parent company of Shandong Hi-Speed Group Co., Ltd, Ltd., hereinafter referred to as "Shandong High-speed", a stable) to provide keepwell and share purchase commitment agreements, with CSHL providing guarantees.
The rating confirmation reflects Fitch's expectation that the correlation between CSHL and Shandong High-Speed will remain stable. Based on Fitch's Parent-Subsidiary Relevance Rating Criteria, CSHL is rated one notch below Shandong High-Speed based on the parent company's willingness to support the subsidiary at 'medium'.
Parent-subsidiary relationship
As of November 2023, Shandong High-speed directly holds 2268% equity interest and 2077% equity. The majority of the board of directors and senior executives of CSHL are appointed by the parent company, Shandong High-speed, and conduct business in accordance with the instructions of Shandong High-speed. CSHL's financial statements are also included in the statements of its parent company.
Relative credit quality
Fitch believes that Shandong High-Speed has a stronger standalone credit profile than Shandong High-Tech Holdings due to its larger business scale, greater diversification, better access to financing and more diversified debt structure. Fitch also believes that **support is likely to flow to subsidiaries as the parent company has provided CSN with credit enhancement measures.
Correlation strength
The willingness to provide support at the legal level is "moderate":Fitch believes Shandong High-Speed will provide financial support to CSL, although the proportion of guaranteed debt is variable. As of the end of September 2023, Shandong High-Speed has provided a comprehensive guarantee for 36% of CSHL's debt, including bank loans, bonds and perpetual**. If it does not include Shandong Hi-Speed New Energy Group Limited, 01250., a publicly listed holding subsidiary of Shandong Hi-Speed New Energy Group LimitedHK), with a guaranteed debt ratio of about 60%-85%. Most of the company's secured debt is short- to medium-term, which limits the assessment of higher factors.
Shandong High-Speed also provided other types of support, including a keepwell agreement with Shandong High-Speed for certain of the bonds of Shandong High Holdings, as well as equity purchase commitments. Fitch considers this to be a contractual obligation to ensure that CSHL has sufficient assets and liquidity to meet its obligations under the credit enhancement provided by Shandong High-Speed Corporation. CSHL's offshore USD bonds contain top-down cross-acceleration clauses, meaning that a default by Shandong High-Speed and its subsidiaries will result in a default on the bonds.
The willingness to provide support at the strategic level is "moderate":Fitch believes that Shandong High-Speed is 'moderate' in its willingness to provide support to CSHL at a strategic level, despite the low financial contribution of the subsidiaries to the group. Shandong High-speed positions Shandong High Holdings as an important investment and financing platform for overseas industries. CSHL is an important part of the parent company's core business strategy, particularly in the new energy and new infrastructure sectors. The company has increased its industrial investment through the offshore capital market, providing Shandong Expressway with a substantial competitive advantage.
Fitch assesses CSHL's growth potential as moderate, as the company's investment is aligned with Shandong High-Speed Group's core value chain and development strategy, and Shandong High-Speed provides capital and resources to support CSHL's growth. In addition, Fitch believes that CSHL's default on its offshore bonds will affect market sentiment and investor confidence in Shandong Expressway, and may affect its reputation.
Willingness to provide support at the operational level is "moderate":Fitch assesses the operational synergies between Shandong High-Speed and Shandong High-Tech Holdings to be 'moderate', with reasonable cost avoidance costs for the subsidiary's operating interests to the parent company, which Fitch believes will result in a 'moderate' willingness to provide support from Shandong High-Speed Holdings. The chairman of CSHL is also the executive director of Shandong High-speed; Its important operational and financial decisions are subject to the approval of Shandong High-Speed Expressway. In addition, the parent and subsidiary companies share the brand of Shandong High-Speed Group.
Summary of Rating Derivation.
Based on Fitch's Parent-Subsidiary Rating Correlation Criteria, we use a top-down, "strong parent" rating methodology to downgrade the parent company's Shandong High-Speed rating by one notch to arrive at the rating of Shandong High Speed. The rating comes from Fitch's assessment of Shandong High-Speed Group's willingness to support CSHL at the legal, strategic and operational levels.
Fitch has rated Shandong High-Speed based on the four factors in its Rating Criteria for Relevant Companies, with Shandong Province as the shareholder. Based on its "Rating Standards for Public Service Revenue Supporting Enterprises", the independent credit profile of Shandong High-speed is derived.
Rating sensitivity.
Factors that could individually or collectively lead to negative rating action on Fitch Factors that could downgrade include:
Shandong High-Speed is less willing to provide legal and operational support to CSHL, including the weakening of the competitive advantage and growth potential of the subsidiary vis-à-vis the parent company, or the reduced degree of integration of the parent and subsidiary at the management and operational levels;
dilution of the parent company's shareholding in the subsidiary;
Fitch takes negative rating action on Shandong High-speed;
Fitch downgrades CSHL's IDR, which would take similar rating action on the above-mentioned notes guaranteed by CSHL and issued under its Notes programme.
Factors that could individually or collectively lead to positive rating action by Fitch include:
If Shandong High-Speed is more willing to provide support to CSHL at the legal, strategic and operational levels, the rating gap between parent and subsidiary will narrow;
Fitch takes positive rating action on Shandong Expressway;
If Fitch upgrades CSR, it will take similar rating action on the above-mentioned notes guaranteed by CSHL and issued under its Notes programme.
Issuer Profile.
Formerly known as China Shandong High-Speed Financial Group***, CSHL was listed on the Hong Kong Stock Exchange in 1992 and has transformed into an overseas industrial investment and financing platform with new energy and new technology sectors as its main investment direction after the completion of the acquisition of CSNV. As of the end of June 2023, CSHL holds 4345%。More than 75% of CSN's assets are industrial assets, involving solar and wind energy, hydropower, clean heating and other clean energy businesses, which are funded by CSN New Energy.