Qingdao Conson Development (Group) Co. Ltd.

The stable outlook on QCD over the next 12-24 months reflects our view that the credit profile of the Qingdao municipal government will stabilize. We expect the government to benefit from a more supportive intergovernmental fiscal regime. We also expect the city's fast economic growth and access to funding from the capital market to mitigate the impact of its relatively large deficit, with a heavy and rising debt burden. We expect QCD to maintain its extremely high likelihood of receiving extraordinary government support over the next 24 months. In our view, QCD will continue to focus on developing government-mandated projects, for which the government will provide strong ongoing financial and operational support. However, the company's leverage will remain high, given

...Extremely high likelihood of receiving government support continue to underpin the rating.We continue to see close ties between the Qingdao government and Qingdao Conson Development (Group) Co. Ltd. (QCD), as the company remains a crucial platform for infrastructure construction and civil facility operation. In addition, QCD operates the critical Jiaozhou cross-sea tunnel and executes policy-driven industrial and financial investments in the city. In our view, QCD's role is not easily undertaken by other state-owned enterprises (SOE) or private companies. Leverage likely to remain high due to large capital expenditure (capex) in the marine industry/fishery as part of the local government financing vehicle (LGFV) transformation. Under the backdrop of Qingdao's goal to develop marine industries, the company is expanding its marine technology investment, particularly its fish farming business, which aims to become operational as early as 2020. This segment accounts for 2% of QCD's revenue...

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