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Announcement:

Moody's: Consolidation of Chinese SOEs' property business is credit positive for buyers and sellers of property assets

 The document has been translated in other languages

01 Sep 2016

Hong Kong, September 01, 2016 -- Moody's Investors Service says that state-owned enterprises (SOEs) in China have accelerated the consolidation of their property businesses — amid the government's SOE reforms — and that such consolidation is credit positive for buyers and sellers of the property assets.

"SOEs that sell their non-core property operations will improve their resource allocations and operational efficiency," says Kai Hu, a Moody's Senior Vice President. "Meanwhile, established property players buying the assets will strengthen their market positions and increase their land banks."

"We expect that the property business in relation to central SOEs will be dominated increasingly by a few distinct leaders, such as China Overseas Land & Investment Limited, Poly Real Estate Group Co. Ltd and China Resources Land Limited ," says Cindy Yang, a Moody's Analyst.

Moody's explains that other central SOEs could sell their property businesses or maintain an indirect exposure to the property sector by holding minority stakes in leading property companies. Such stakes can enhance the SOEs' profitability, provide some diversification benefits, and serve as a source of liquidity when needed.

Moody's analysis is contained in its recently-released report titled "State-Owned Enterprises & Property -- China: Central SOEs' Consolidation of Property Businesses Is Credit Positive".

Moody's report points out that China's SOE reforms have caused some central SOEs — with non-core property businesses — to sell their property assets to large-scale developers, particularly those with a state-owned background.

State-owned conglomerates, CITIC Group Corporation (A3 negative) and Aviation Industrial Corporation of China (AVIC, unrated), will lower their leverage once the debt obligations associated with their property assets are transferred. The asset disposals will also enable the SOEs to focus resources on their core businesses.

Moody's report says that the state-owned developers, China Overseas Land & Investment Limited (COLI, Baa1 stable) and Poly Real Estate Group Co. Ltd (Baa2 negative) will likely take over the property businesses of CITIC and AVIC respectively. And, the acquisition of sizable property businesses from other central SOEs will help COLI and Poly Real Estate expand their land banks relatively cheaply when compared with acquisitions through highly competitive open auctions.

Moody's also says that COLI and Poly Real Estate's sound operating and financial positions will mitigate the risks related to business integration and the debt associated with the transferred assets.

Subscribers can access the report at: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1036457

The report may also be found through Moody's topic page "China's Trilemma: Growth, Reform and Stability", available at http://www.moodys.com/chinarebalancing. This page provides a centralized source for Moody's research related to key credit issues in China as the country's macroeconomic story continues to unfold.

Recent Moody's publications relating to China's Trilemma include:

• ABN — China: New Chinese Trust Structure Asset-Backed Notes Offer Better Ring-Fencing Protection

• Banks — China: Increasing Reliance on Wholesale Funds Makes Midsize and Small Chinese Banks More Vulnerable to Confidence Shocks

• China Property Focus — August 2016

• Regional and Local Government (RLG)-Related Issuers — China: Moody's Support Assumptions for Entities Owned by Chinese RLGs

• Regional and Local Governments — China: Key Factors Shaping Standalone Credit Strength

• Measures to Cool Rising Property Prices in Nanjing and Suzhou, China, Are Credit Negative for Developers

• China Credit: Spillover from Potential Dislocation in Onshore Bond Market Would Be Limited

• High-Yield Non-Financial Companies — China: Most Rated Companies Can Manage Foreign Currency Debt Exposure

• China Credit Market: Wuhan Guoyu's Liquidity Crunch Tests Investor Protection in China

• Chinese Proposal to Regulate Banks' Wealth-Management Products Is Credit Positive

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

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.

Kaven Tsang
VP - Senior Credit Officer
Corporate Finance Group
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
SUBSCRIBERS: (852) 3551-3077

Cindy Yang
Analyst
Corporate Finance Group
JOURNALISTS: +86 21 2057 4020
SUBSCRIBERS: +(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
SUBSCRIBERS: (852) 3551-3077

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