NOTE: On September 02, 2015, the press release was corrected as follows: In the first sentence of the twelfth paragraph, “net debt/EDITDA” was changed to “debt/EBITDA” and “fall” was changed to “rise”. Revised release follows.
Hong Kong, September 01, 2015 -- Moody's Investors Service says that most of the 70 rated Chinese
utility, infrastructure and non-property companies that it
analyzed in a just-released report have sufficient financial cushion
to withstand a 10% depreciation of the renminbi (RMB). This
10% depreciation assumption includes the depreciation that followed
the 11 August change in the mechanism for determining the daily fixing
rate of the renminbi against the US dollar.
"The 70 companies that we analyzed held 48% of their debt
in currencies other than renminbi as of 31 December 2014, including
offshore bonds and bank loans," says Clement Wong, a
Moody's Associate Managing Director. "Most of that
debt was unhedged."
"Nonetheless, some of these companies generate revenues in
US dollars. These revenues provide a natural hedge against interest
expenses and principal amounts rising in renminbi terms,"
adds Associate Managing Director Vivian Tsang. "Other companies,
particularly investment-grade ones, have strong liquidity
positions, and low to moderate debt levels."
Moody's analysis is contained in its just-released report
titled "Non-Property Companies -- China: Most Rated
Companies Can Manage Modest Renminbi Depreciation."
Of the 70 companies, only one investment-grade company and
four speculative-grade ones will come under increased downward
rating pressure, under Moody's analysis of a 10% weakening
of the RMB.
Moody's identified gas utility Binhai Investment Company Limited
((P)Baa3 stable) as the sole investment-grade company that will
come under greater downward rating pressure under the 10% depreciation
scenario.
Fifty-five percent of the company's debt was denominated
in foreign currency at year-end 2014, and the company shows
limited financial headroom owing to its small business scale and geographic
concentration.
As for the four speculative-grade companies, Moody's
named Anton Oilfield Services Group (Caa1 negative), Yanzhou Coal
Mining Co. Ltd. (Ba2 negative), China Oil and Gas
Group Limited (Ba1 negative) and the auto rental provider, CAR Inc.
(Ba1 stable).
Anton Oilfield's credit metrics are negatively affected by low global
oil prices, so a weakening of the RMB would exacerbate its weak
business fundamentals and high debt levels.
Yanzhou Coal's adjusted net debt/EBITDA would exceed its downgrade
trigger of 6x if the RMB weakens by 10% but would be partially
offset by natural hedging from its Australian operations and parental
support.
China Oil and Gas' adjusted debt to capitalization would approach
Moody's rating tolerance level of 50% if the same currency
situation occurs.
CAR Inc.'s projected debt/EBITDA would rise to the downgrade
trigger of 3.5x under the depreciation scenario. But that
ratio is likely to improve to around 3.3x in 2016 as contribution
from new vehicles are recognized.
The 10% sensitivity analysis that Moody's conducted on the
50 rated investment-grade and 20 speculative-grade companies
reflects a level of RMB depreciation that is worse than Moody's
expects.
The Moody's report notes that other factors could counterbalance
the impact of renminbi depreciation. For example, greater
exchange-rate flexibility could provide the Chinese authorities
with additional scope to ease monetary conditions to support the economy.
If this scenario were to occur, the reduction in domestic interest
rates would lower interest costs on domestic borrowings, softening
both the impact of higher US dollar-denominated interest costs
in renminbi terms, and the deterioration in rated companies'
debt metrics.
In addition, a 10% depreciation of the RMB could stimulate
export growth, with possible economic benefits for many of the non-property
companies that Moody's rates.
Near-term refinancing risk of US dollar bonds is low for the rated
portfolio. Most of the bonds due by August 2016 were issued by
state-owned enterprises. We expect they will be able to
refinance this debt given their good access to debt markets because of
their government backing.
Subscribers can access the report at: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1007819
Moody's offers complimentary access to its new topic page, China:
Reform and Rebalancing, a centralized source for Moody's research
related to key credit issues in China as the country's rebalancing story
unfolds. This report is part of Moody's ongoing coverage on this
theme. Register today at www.moodys.com/chinarebalancing
for access to all research on this page.
Recent Moody's publications relating to China Reform and Rebalancing include:
China, Government of
Property - China: Rated Developers Have Headroom to Withstand
Modest RMB Depreciation
Government of China: Advance in Exchange Rate Reform Is Credit Positive
for the Sovereign
Chinese and Indian Auto ABS: Two Very Different Markets When it
Comes to Forms of Credit Enhancement
China Airport Sector: Diverging Credit Quality of Hub and Smaller
Airports
Quarterly China Shadow Banking Monitor (Presentation)
Eurasian Sovereigns: China's Belt and Road Strategy --
Credit Positive for Emerging Markets
China Property Focus - July 2015
China: One Belt, One Road Is Credit Positive, Despite
Rising Overseas Risk Exposure (Presentation)
Inside China - July 2015
These reports are available at http://www.moodys.com/chinarebalancing
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 [email protected] 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.
Vivian Tsang
Associate Managing Director
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
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: Most of non-property Chinese companies can withstand a 10% weakening of the RMB