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Announcement:

Moody's: New toll-free policy is credit negative for Chinese toll road operators; impact hinges on several factors

 The document has been translated in other languages

18 Feb 2020

Hong Kong, February 18, 2020 -- Moody's Investors Service says the new toll-free policy for all toll roads and bridges in China is credit negative for rated Chinese toll road operators.

On 15 February 2020, China's Ministry of Transport issued a notice on a new toll-free policy for all toll roads and bridges in China, as part of efforts to support the resumption of operations across various sectors following the coronavirus outbreak. The new policy is effective on 17 February 2020.

Moody's expects the rated toll road operators' financial profiles will be weakened by the reduction in operating cash flow, and the strain on cash flow will also tighten their liquidity and increase refinancing risk in the short term.

The extent of the financial impact on the toll road sector will depend on the duration of the toll-free period and any potential government compensation measures, as well as any countermeasures that issuers may implement to offset the decline in revenues. The regulator did not specify a time frame but indicated the policy will end upon the completion of coronavirus prevention and containment work.

Moody's expects the forms of compensation could include, among other things, direct government subsidies, extensions to the concession life of toll road projects, as well as extensions of credit facilities by domestic banks. The cash flow impact of any compensation measures will depend on the form of measures taken. For example, extensions to the concession life of toll roads will provide the least immediate relief to any potential short-term cash flow issues.

Notwithstanding that the new policy will compress rated toll road operators' financial capacity, Moody's expects the liquidity and refinancing risk of most rated toll road operators to remain manageable in the near term because of their (1) adequate cash on hand compared to maturing debt over the next 3-6 months, and (2) proven funding access to meet any funding gaps.

However, at this stage, it is difficult to gauge the full impact of the disruption resulting from the coronavirus outbreak and the new toll-free policy as it will depend on, among other things, the duration of the toll-free policy period and the form and timing of government compensation as previously mentioned.

Assuming that the disruptions from coronavirus outbreak are short term, we expect the policy measure for toll roads will be temporary, although traffic ramp up will take time, depending on asset location. Under Moody's macroeconomic baseline forecast, Moody's assumes the spread of the coronavirus will be contained by the end of Q1, allowing for resumption of normal economic activity in Q2.

We will continue to closely monitor developments and engage with issuers to further ascertain the credit negative implications of the new policy measure.

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.

Ivy Poon
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

Yian Ning Loh
Associate Managing Director
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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