Fitch Ratings has affirmed
Fitch has also affirmed HSF's senior unsecured
The affirmation reflects the
KEY RATING DRIVERS
Status, Ownership and Control: 'Very Strong'
HSF is a limited liability company under
Support
The
Ample land resources have been injected into HSF, providing a solid foundation for the company's business diversification and revenue growth. HSF had land resources of over 9.6 million mu (equivalent to 6,425 square kilometres) at end-2022, of which 96.8% was farmland. This accounted for around 18% of the province's total land area. HSF has capitalised land resources of
Socio-Political Implications of Default: 'Moderate'
HSF's role in securing natural rubber and food supplies and promoting the development of the local agricultural industry is important to social welfare and local economic growth. We therefore expect the government to provide administrative or fiscal support to ensure HSF's operational viability. However, the government can appoint other GREs to act as substitutes, if needed. In addition, HSF's main subsidiary,
Financial Implications of Default: 'Moderate'
HSF is the second-largest GRE by total assets that is directly held by the
However, the implications of HSF's default are limited by its small amount of public debt compared with other Fitch-rated provincial-level GREs; its total debt outstanding of
Standalone Credit Profile
We assess HSF's Standalone Credit Profile (SCP) at 'bb'. We classify HSF as a government-owned strategic investment holding company that mainly invest in the agricultural industry, thus we derive its SCP based on parent-level financials. At the parent level, HSF mainly generates investment income from dividends paid from its equity investments or from the sale of equity and assets. It also generates income from property sales and receives subsidies from the provincial government.
Revenue Defensibility 'Midrange'
We assess HSF's revenue defensibility as 'Midrange'. This reflects a combination of 'Midrange' demand characteristics and 'Midrange' pricing characteristics. HSF has a diversified portfolio and stable investment income from subsidiaries and associate companies. The assessment also factors in the leading market position of HSF's key subsidiary, Hainan Rubber, industry concentration in the agricultural industry and geographic concentration in
Operating Risk 'Midrange'
We assess operating risk as 'Midrange'. This reflects a combination of 'Midrange' operating costs and resource management and 'Neutral' capital planning and management. HSF has well-identified cost drivers and an adequate supply of labour. It has operated smoothly in the past without major delays or accidents.
Financial Profile 'Weaker'
We assess the financial profile as 'Weaker' due to the company's high leverage. We expect leverage, as measured by net adjusted debt/EBITDA, to reach 9.3x by 2027 under Fitch's rating case, following an acquisition in
Derivation Summary
We rate HSF under our Government-Related Entities Rating Criteria, reflecting
We derive HSF's SCP by assessing the company's revenue defensibility, operating risk and financial profile under our Public Sector, Revenue-Supported Entities Rating Criteria.
Liquidity and Debt Structure
HSF had an unrestricted cash balance of
Issuer Profile
The provincial government mandates HSF to manage and invest in key agricultural assets. It is the largest comprehensive agricultural industry group in
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Deterioration in Fitch's perception of the
A weakening of the socio-political or financial implications of a default by HSF and support by the government, or a dilution of the government's control in the company.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Improvement in Fitch's perception of the
Stronger socio-political or financial implications of a default by HSF or support from the government.
A multi-notch lift in the SCP.
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
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure 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 three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
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