Hong Kong, April 21, 2016 -- Moody's Investors Service says the credit quality of the Chinese
non-property companies that it rates will continue to diverge over
the next 12-18 months, with companies in the oil & gas,
steel, chemicals, metals and mining, and commodity trading
sectors still most under pressure from China's (Aa3 negative) economic
slowdown.
"Weak commodity prices and industry oversupply will continue to
pressure the credit profiles of companies in these sectors in particular,"
says Lina Choi, a Moody's Vice President and Senior Credit
Officer.
"Conversely, for companies in the food & beverage,
specialty chemicals, auto and construction sectors, lower
input costs will help buffer the negative impact of the slowing economy,"
adds Choi.
Choi was speaking on the release of a new Moody's report on Chinese
non-property companies, titled "Credit Quality Continues
to Diverge on Slower Economic Growth."
Moody's report looks at key credit trends for China's internet,
food & beverage, retail, oil & gas, construction
and engineering services, steel, chemical, metals &
mining and automaker sectors.
For companies in the internet and technology sectors, Moody's
says structural changes in consumption preferences and distribution will
support growth, although at the expense of traditional retail formats
such as department stores.
Food & beverages companies will benefit from low raw material prices,
which will support stable margins and provide a buffer against weak revenues
and pressure on profitability.
Low commodity prices continue to pressure the profits and cash flows of
Chinese national oil companies, with further pressure on profitability
arising from the recent significant reduction in the domestic gas tariff.
And moderate demand from infrastructure builds in China and overseas will
offset slowing construction in the property and metallurgical sectors,
with steadily rising earnings supporting stable credit profiles.
In the steel sector, profitability will decline due to falling production
volumes and lower capacity utilization. Lower raw materials are
also no longer sufficient to offset the impact from failing steel prices.
Consequently, steelmakers' debt leverage and liquidity risk
continue to rise, in turn raising corporate default rates in the
sector.
Worsening oversupply amid slow demand has resulted in depressed pricing
and profits in bulk chemicals. However, the low oil prices
will benefit some producers of specialty chemicals with very high barriers
to entry, price premiums, and tailor-made solutions
for end-users.
In the metals & mining sector, the sharp drop in revenue and
earnings has raised leverage for many entities, which Moody's
expects will lead them to balance cash preservation with the pursuit of
growth opportunities.
Finally, Moody's says automakers will benefit from higher
China auto unit sales growth in 2016, supported by the country's
vehicle-purchase tax cut.
Subscribers can access the report at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_189180
The report may also be found through this link to Moody's topic
page titled China — Reform and Rebalancing: http://www.moodys.com/chinarebalancing.
The topic page provides subscribers with a centralized source for Moody's
research related to key credit issues in China, as the country's
rebalancing story unfolds.
Recent Moody's publications relating to China Reform and Rebalancing include:
• Chinese Diversified Technology Sector: Resilient Amid China's
Economic Rebalancing
• Chinese Banks: 2015 Results Show Continued Pressure on Asset
Quality and Profitability
• Regional and Local Governments -- China: Assessing the
Standalone Credit Profiles of Lower-Tier Chinese RLGs
• Oil and Gas -- China: National Oil Companies'
Aa3 Ratings Confirmation Reflects Strong Government Support and Financial
Flexibility
• Auto ABS -- China: Answers to Frequently Asked Questions
About Performance
• Measures to Cool China's Hot Property Markets Are Credit
Negative for Developers
• Chinese Overcapacity Sectors: Financial Pressure Tests Implicit
Local Government Support
• Property -- China: Developers Face Credit Negative Effects
from Measures to Dampen Price Surge in Shanghai and Shenzhen
• China Property Focus -- March 2016
• Automakers -- China: Sales Growth to Accelerate in 2016
with Vehicle-Tax Cut buw Slow in 2017
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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.
Lina Choi
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
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
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
Moody's: Credit quality of Chinese non-property companies to further diverge on slower economic growth