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Announcement:

Moody's: Jiangxi Water's controlling shareholder change has no immediate rating impact

 The document has been translated in other languages

31 Mar 2022

Hong Kong, March 31, 2022 -- Moody's Investors Service says that Jiangxi Provincial Water Conservancy Invt Grp's (Jiangxi Water, Baa1 stable) announced change of its controlling shareholder has no immediate rating impact on 1) the company's Baa1 issuer rating and its stable outlook; 2) Baa1 rating on the senior unsecured bond issued by Jiangxi Provincial Water Conservancy (China), a wholly- owned subsidiary of Jiangxi Water; and the stable outlook of Jiangxi Provincial Water Conservancy (China). The bond is irrevocably and unconditionally guaranteed by Jiangxi Water.

On 25 March 2022, Jiangxi Water announced that its direct controlling shareholder, Jiangxi Provincial State-owned Assets Supervision and Administration Commission (Jiangxi SASAC), will transfer its 90% shareholding in Jiangxi Water to Jiangxi State-Owned Capital Operation Holdings Group Co Ltd (Jiangxi State-Owned Capital) under the provincial government's mandate. After the transfer, the controlling shareholder of Jiangxi Water will change from Jiangxi SASAC to Jiangxi State-Owned Capital, which is a state-owned capital management and investment platform directly under Jiangxi SASAC. Jiangxi provincial government will remain as the ultimate controller of Jiangxi Water.

"We do not expect the shareholder transfer to have an immediate rating impact on Jiangxi Water because Jiangxi provincial government's propensity to support the company is unlikely to change under the new ownership structure. It is because Jiangxi Water's strategic role as the sole provincial water conservancy platform remains unchanged, and we believe Jiangxi State-Owned Capital will be unlikely to intervene Jiangxi government's direct supervision and support in Jiangxi Water, which are critical for the latter to execute its policy role in water conservancy and water supply," says Cedric Lai, a Moody's Vice President and Senior Analyst.

"Thus, we expect the new ownership structure to not affect the timeliness of sustainable government support and commitments for Jiangxi Water in the form of cash injections, operating subsidies, government bond allocations and contractual payments related to its water supply projects," adds Cedric.

Moody's will continue to monitor if Jiangxi Water's credit profile will deviate from the rating agency's expectations under the new ownership structure. Specifically, Moody's will monitor and assess (1) if there are any changes in Jiangxi Water's market position and policy functions; (2) the timeliness and adequacy of government payment or other funding support; (3) if there is any change of government's direct supervision and cover over Jiangxi Water; and (4) if there is any cash leakage or material credit exposures to Jiangxi State-Owned Capital.

Jiangxi Water's Baa1 issuer rating is based on (1) Jiangxi provincial government's capacity to support (GCS) score of a2; (2) Moody's assessment of how the company's specific characteristics affect the Jiangxi provincial government's propensity to provide support, which results in a two-notch downward adjustment.

Moody's assessment of Jiangxi's GCS score reflects (1) its status as a province with direct reporting lines to the central government and its positioning at one of the higher administrative levels in Moody's assessment of the hierarchy of China's regional and local governments (RLGs); (2) its moderate economic and fiscal profiles, relatively moderate risks from the local banking system and relatively low contingent liability risks from its state-owned enterprises (SOEs).

Jiangxi Water's Baa1 issuer rating reflects the Jiangxi government's propensity to support the company, given (1) the provincial government's ultimate ownership of the company and Jiangxi Water's role as the sole provincial water conservancy platform; (2) the track record of government cash payment; and (3) Jiangxi Water's strong access to funding.

However, the two-notch downward adjustment from Jiangxi government's GCS score mainly reflects 1) Jiangxi Water's medium exposure and investment in commercial businesses, which mainly include construction, solar and hydro renewable projects, and local property development, and 2) its relatively fast debt growth to support the investment in water supply and water conservancy projects relative to government cash payments.

The rating also takes into account the following environmental, social and governance (ESG) factors.

Moody's considers Jiangxi Water's environmental risk to be moderate. Jiangxi is a province with abundant water resources, and the company's operations could be affected by any water diversion and pollution; for example, the water quality of its reservoir or incoming polluted raw water for its water supply plants. However, the company's policy goal of conserving water resources within the province and its importance in flood control are in line with the national policy, and Moody's expects to see policy support and its compliance with environmental regulations.

Jiangxi Water bears high social risks due to its engagement in large-scale water conservancy project investments and water supply projects that could affect the health and safety of the province's residents. The water projects undertaken by Jiangxi Water carry significant social functions for the benefit of Jiangxi residents, including flood control and maintaining the quality and capacity of water supply in the province, benefiting over half of the population of Jiangxi province.

Governance considerations are also material to the ratings, as Jiangxi Water is subject to oversight and reporting requirements to its owner RLG, reflecting its public policy role and status as a government-owned entity. Under the new shareholding structure, Moody's believes Jiangxi Water will still be closely supervised and controlled by its RLG owner.

Jiangxi Water's stable outlook reflects (1) the stable outlook on China's sovereign rating; (2) Moody's expectation that the Jiangxi government's GCS score will remain stable, and (3) Moody's view that the control and oversight by the Jiangxi government will remain largely unchanged over the next 12-18 months; and (4) Moody's expectation that the change of the immediate shareholder will not affect the provincial government's direct supervision and support in the company.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's would upgrade Jiangxi Water's issuer rating if (1) China's sovereign rating is upgraded or the Jiangxi government's GCS strengthens, which could be a result of a material strengthening of Jiangxi government's economic or financial profile, or their ability to coordinate timely support; (2) Jiangxi Water's specific characteristics change in a way that enhances the Jiangxi government's propensity to support the company, such as a significant improvement in the visibility of recurring government support, including the provision of grants and subsidies.

Moody's would downgrade Jiangxi Water's issuer rating if (1) China's sovereign rating is downgraded; or Jiangxi government's GCS weakens, which could be a result of a material weakening in Jiangxi government's economic or financial profile, or the government's ability to coordinate timely support; (2) Jiangxi Water's specific characteristics change, including a material weakening in its market position and policy functions after the shareholding transfer; (3) the government support for Jiangxi Water is becoming less predictable under the new shareholding structure, including rising uncertainties in receiving timely and adequate government financial support; (4) potential cash leakage or credit support from Jiangxi Water to the new immediate shareholder (including its related companies) that undermines Jiangxi Water's financial position , or raises its debt level; (5) Jiangxi Water's business model is becoming less predictable and the company engages in riskier commercial business segments.

Established in 2008, Jiangxi Provincial Water Conservancy Invt Grp (Jiangxi Water) is the sole provincial-level water conservancy state-owned enterprise (SOE) within Jiangxi province. As of December 2021, the company was 90% owned by Jiangxi Provincial State-owned Assets Supervision and Administration Commission (Jiangxi SASAC) and 10% owned by Jiangxi Administration Asset Group Co Ltd. On 25 March 2022, Jiangxi Water announced that its direct controlling shareholder, Jiangxi Provincial State-owned Assets Supervision and Administration Commission (Jiangxi SASAC) will transfer its 90% shareholding in Jiangxi Water to Jiangxi State-Owned Capital Operation Holdings Group Co Ltd (Jiangxi State-Owned Capital). Jiangxi government will remain as the ultimate controller of Jiangxi Water after the transfer.

Jiangxi Water's business activities include investments in and the operation of water conservancy projects, urban and rural water supply integration, hydropower and solar projects. The company reported total assets of RMB64.9 billion as of the end of September 2021.

The local market analyst for these ratings is Sarah Xu, +86 (21) 2057-4030.

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.

Cedric Lai
Vice President - Senior Analyst
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
Client Service: 852 3551 3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
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
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JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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