Fitch Ratings has affirmed
The company's senior unsecured rating and the outstanding senior unsecured notes issued by
AVIC's credit profile reflects the potential support from the Chinese central government under the agency's Government-Related Entities (GRE) Rating Criteria. We expect the governmental support to flow down to
KEY RATING DRIVERS
Parent Pivotal to National Defence: AVIC, originally a state-owned aircraft manufacturer, is of high strategic importance to
Strong Linkage with AVIC:
Strong operational ties are evident from AVIC's absolute management control over
Diversified Business:
Its diversified business scope enabled it to weather the economic downturn with a slight revenue drop of 4% in 2020, despite Covid-19's severe hit on the aviation industry. AVIC's advanced manufacturing business comprises mainly electronics, including the manufacture of liquid crystal displays and printed circuit boards, which have high growth potential amid the use of 5G technology.
Large Capex; High Leverage: Fitch assesses
DERIVATION SUMMARY
Fitch's internal assessment of AVIC's credit profile is based on Fitch's GRE criteria. AVIC is the main producer of military aircraft and other aviation products in
The linkage between the two entities is similar to that of peers rated two notches below their parents, such as
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Our Rating Case for the Issuer :
Revenue growth to recover to 4% in 2021 due to robust performance from the electronics segment and trading business, and then slow to 1% starting 2022, with the company gradually exiting its non-core businesses;
Operating EBITDA margin to improve to 9%-9.5% during 2021-2023, with a larger contribution from the profitable electronics segment;
Capex to remain at 8%-8.5% of revenue, or
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive rating action on the Chinese sovereign;
Strengthening linkages between
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative rating action on the Chinese sovereign;
Weakening linkages between
Weakening likelihood of support from the Chinese sovereign to AVIC.
For the sovereign rating of
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Structural features: A further rise in macro-financial risks, for example through failure to maintain credit growth close to or below nominal GDP growth over the next few years.
Public finances: A sustained upward trend in government debt/GDP, or a crystallisation of contingent liabilities that leads to a sharp rise in government debt relative to 'A' peers.
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 qualitative overlay notch on structural features.
External finances: Evidence of widespread adoption of the Chinese yuan as a global 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
Smooth Funding Access: Liquidity is not an issue for
ISSUER PROFILE
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.
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
RATING ACTIONSENTITY/DEBT RATING PRIOR
senior unsecured
LT A- Affirmed A-
AVIC International Holding Corporation LT IDR A- Affirmed A-
LC LT IDR A- Affirmed A-
senior unsecured
LT A- Affirmed A-
senior unsecured
LT A- Affirmed A-
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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