Gansu Highway#s Proposed Senior Unsecured Notes Rated #BBB-#

SINGAPORE (S&P Global Ratings) July 5, 2018--S&P Global Ratings today said it has assigned its 'BBB-' long-term issue rating to a proposed issue of U.S. dollar-denominated senior unsecured notes issued by Gansu Provincial Highway Aviation Tourism Investment Group Co. Ltd. (Gansu Highway; BBB-/Stable/--). The issue rating is subject to our review of the final issuance documentation. The issuer intends to use the net proceeds for general corporate purposes, repayment of existing debt, and funding domestic business development.

In our view, Gansu Highway provides an essential nonprofit public service that the private sector cannot easily replace. The China-based company is the Gansu provincial government's primary financing, construction, and operational entity for highway development in the province, and is wholly owned by the government. It is the largest and one of the most important state-owned enterprises in the province.

We equalize the issue rating with the issuer credit rating on Gansu Highway. The rating equalization reflects our expectation that in the event of default, the company's senior unsecured debtholders will not necessarily be disadvantaged relative to secured debtholders in terms of recovery prospects. This is despite the ratio of secured debt to total debt being higher than our 50% threshold for a potential notch down. As of Dec. 31, 2017, the company had Chinese renminbi 130 billion of secured debt, which is predominantly loans from state-owned banks with the collateral being concession rights over government toll roads in the province.

Our issue rating also considers Gansu Highway's unique features. We believe that the company's senior unsecured debt will benefit from government intervention as the company is specially positioned as the only operator of government toll roads in Gansu province. Toll revenues and expenses on such government toll roads are an integral part of the provincial government's fiscal budget. The government is heavily involved in day-to-day toll revenue collection and apportionment. We also consider a sizable portion of Gansu Highway's secured loans to be contingent liabilities of the government.