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Announcement:

Moody's: China's announced cut in container handling tariff is credit negative for port operators

05 Feb 2018

Hong Kong, February 05, 2018 -- Moody's Investors Service says that China's National Development and Reform Commission's (NDRC) cut in the benchmark container handling tariff in four ports is credit negative for the rated Chinese port issuers.

The issuers most affected by the cut are China Merchants Port Holdings Company Limited (CMPH, Baa1 negative) and Hutchison Port Holdings Trust (HPHT, Baa1 stable).

"However, there is no immediate rating impact as the rated ports in China have already been charging discounted handling tariffs for the major shipping lines, and those tariffs are also broadly in line with the reduced benchmark," says Osbert Tang, a Moody's Vice President and Senior Analyst.

NDRC estimates that the overall cost savings for logistics from this reduction would be only RMB960 million, which translate to around RMB17.5 per TEU reduction based Ministry of Transport's estimated 2017 throughput of over 55 million TEUS in these four ports. Such amount is manageable when compare with CMPH and HPHT's 2016 reported revenue of HKD8.0 billion and HKD11.9 billion respectively.

The pressure on container handling profitability is also partly offset by the growth in throughput volume. Moody's estimates that that container throughput will grow moderately in the low-single-digit percentages in 2018, after a preliminary 2017 growth rate of 7.7% in 2017 estimated by the Ministry of Transport.

However, the reduction may still led to compression in the negotiated container handling tariffs, thereby reducing the port companies' financial headroom in the next two to three years.

Moody's will closely monitor (1) the port operators' ability to maintain tariffs when renewing contracts with their major customers, (2) container throughput growth that offsets the reduction in revenue due to the tariff cut, and (3) any further administrative measures to reduce logistics costs and port regulation charges.

On 1 February 2018, NDRC announced a reduction in the benchmark container handling tariff for import and export containers at ports in Dalian, Guangzhou, Yantian, West Shenzhen (Shekou and Chiwan) by 20% to 33%, or RMB132 to RMB420 per TEU.

Previously on 15 November 2017, NDRC had already announced one round of non-transshipment import and export container handling tariff cuts for ports in Shanghai, Tianjin, Ningbo-Zhoushan and Qingdao by 11% to 21%.

The cuts were effective 1 January 2018, and NDRC stated that all coastal ports in China with throughput of over 10 million TEUs have already implemented tariff reduction accordingly.

The tariff adjustments have been prompted by the Chinese government's (A1 stable) anti-monopolistic approach to the business operations of coastal ports, with the aim of reducing overall logistics costs and promoting a fairer operating environment for shipping companies.

Other announced measures included a further opening of the tugboat, tallying and shipping agency markets, and the cancellation of unreasonable contract clauses.

CMPH posted RMB8.0 billion container revenue at the end of 2016, of which 75% of its revenue were generated from the Pearl River Delta, mainly Shekou and Chiwan Ports in Western Shenzhen. It is the largest port investor in China with investments in major container ports, including Shanghai, Dalian, Qingdao and Ningbo.

HPHT reported 18.1 million TEU throughput at the end of September 2017 from container services, of which 53% were generated from Yantian Port in Eastern Shenzhen.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Ada Li
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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