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Announcement:

Moody's: Proposed share issuance with Sinopec has no immediate impact on Binhai Investment's rating

27 Apr 2020

Hong Kong, April 27, 2020 -- Moody's Investors Service says that Binhai Investment Company Limited's (Binhai Investment) Ba1 corporate family rating is not immediately affected by the company's announced investment by China Petrochemical Corporation (Sinopec Group, A1 stable) in the company.

"The proposed investment, if it proceeds as planned, will be credit positive for Binhai Investment, because it will improve the company's liquidity and lower its leverage," says Ada Li, a Moody's Vice President and Senior Credit Officer.

"The investment will also improve Binhai Investment's business profile, as the supplemental gas supply agreement with Sinopec will enable Binhai Investment to obtain a stable natural gas supply at more favorable prices," adds Li.

On 23 April, Binhai Investment (Ba1 stable) announced that it entered into a conditional agreement with the Sinopec Group to issue 177,676,183 new shares (amounting to approximately HKD 236 million) and to dispose of 227,796,154 shares by Tianjin TEDA Investment Holding Co., Ltd. (TEDA) to Sinopec Great Wall Gas Investment Co., an indirect wholly owned subsidiary of Sinopec.

Binhai Investment's financial metrics is weakly positioned at its current rating level due to difficulties in timely cost pass through, especially during winter times. Its FFO/debt declined to 10.9% in 2018 and 10.4% in 2019 from 18.0% in 2016. Without considering the benefits from the proposed transaction, Moody's expects FFO/debt to register at around 10%-10.6% compared to its downgrade trigger of 10%, which leaves limited headroom for the company at its current rating of Ba1.

The proposed transaction, if completed as planned, will improve Binhai Investment's liquidity and capital structure because 70% of the net proceeds from the HKD235 million subscription will be used as general working capital and the remaining balance will be used for debt repayment. The investment and accompanying master gas supply agreement will improve Binhai Investment's business profile, enabling Binhai Investment to obtain a stable natural gas supply at more favorable prices as well as to leverage Sinopec's national presence to capture new business opportunities outside of Tianjin.

After completion of the transaction, Sinopec Group will hold 405,472,337 shares in Binhai Investment, representing 29.99% of the enlarged share capital, and become the company's second largest shareholder. TEDA's shareholding will be diluted to 35.43%, but it will remain the largest shareholder.

If the proposed investment is completed before the maturity of Binhai Investment's $300 million bond due 30 November 2020, this will trigger an early repayment of the bond pursuant to a change of control provision of the bond which becomes effective upon TEDA's shareholding following below 40%. As a result, Binhai Investment has also announced a proposal to modify the terms and conditions on the bond, the modifications of which include reducing the 40% shareholding threshold of TEDA to 30%, and Binhai Investment remaining a "consolidated subsidiary" instead of "subsidiary" of TEDA. The company will pay a consent fee of $2 per $1,000 principal amount of the bond, amounting to maximum $600,000. The modification is subject to bondholders' voting on proposed modifications will be on 22 May 2020.

The proposed Sinopec Investment is subject to various regulatory conditions and will expire on or before 31 December 2020 if the condition precedents cannot be satisfied.

Binhai Investment is principally engaged in the city gas distribution and gas pipe installation businesses in China, mainly in the Tianjin municipality. Binhai Investment operates and services 1.8 million households, and commercial and industrial customers. In 2019, the company sold 1,000 million cubic meters gas and transported 915 million cubic meters gas, recording year-on-year growth of 15% and 38%, respectively.

The proposed annual caps for Binhai Investment purchases of natural gas from Sinopec Group will be RMB544 million for 2020 and RMB1.339 billion for 2021. Moody's expect that these amounts will account for around 20% of the total gas procurement in 2020 and around 45% in 2021.

Binhai Investment is listed on the Hong Kong Stock Exchange and is 60.19% owned by TEDA, which is in turn a wholly owned conglomerate of the State-owned Assets Supervision and Administration Commission of the Tianjin Municipality.

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.

Ada Li
VP - Senior Credit Officer
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

Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
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

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