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Announcement:

Moody's: Reform supports credit quality of rated SOEs

 The document has been translated in other languages

16 Sep 2015

Hong Kong, September 16, 2015 -- Moody's Investors Service says that China's (Aa3 stable) latest reform plan for state-owned enterprises (SOEs) reinforces government control over strategically important state-owned assets and will broadly support the credit quality of its rated SOEs.

"The classification of SOEs by category will help investors assess their relative importance to the Chinese government. SOEs in public welfare areas are generally of strategic importance to the government, given their policy functions and reliance on government funding, and are therefore more likely to receive a high level of government support if needed," says Kai Hu, a Moody's Senior Vice President.

"In addition, commercial SOEs with core businesses in industries important to national security and the economy, or those involved in strategically important projects, will continue to receive government support," adds Hu.

The plan also includes detailed measures to boost SOEs' operational efficiency, competitiveness and corporate governance.

Moody's conclusions were contained in its just-released report on China's SOEs, entitled "State-Owned Enterprises (SOE) -- China: Reform Plan Will Support Credit Quality of Rated SOEs."

Moody's says the plan -- published on 13 September -- is largely in line with guidelines issued by the Communist Party in 2013 at the Third Plenum, and is consistent with expectations.

Under the plan, SOEs will be classified into commercial and public welfare-related businesses. The government will adopt different performance evaluation measurements, supervision methods, and reform and development plans for the different types of SOEs within these two broad categories.

Moody's says most of the central SOEs that it rates operate commercial businesses of strategic importance to the Chinese government, although their importance varies.

The ratings of these SOEs typically incorporate multiple notches of uplift to reflect Moody's assumption of strong to high expected government support. Examples include China National Petroleum Corporation (Aa3 stable), CITIC Group Corporation (A3 stable), Sinochem Hong Kong (Group) Company Limited (A3 stable), China Shenhua Energy Co., Ltd. (Aa3 stable), China Minmetals Corporation (A3 stable) and Baosteel Group Corporation (A3 stable).

The plan also calls for different levels of government to optimize state capital allocation, such that they can exit non-important areas, such as commercial trading, retail and property, and recycle the capital into important areas, such as strategic emerging industries and public welfare projects.

Governments will further delegate some management authority currently exercised by central and local state-owned supervision and administration commissions (SASACs) to a limited number of state-owned capital investment or operation companies (SCICs).

Moody's expects that the SCICs subsequently will be of greater strategic importance and have stronger linkages with governments than the portfolio companies under their management.

Support for SOEs that are low-tier subsidiaries under SCICs, or within large SOE groups, will accordingly trend lower -- especially where these companies are in non-strategic competitive areas.

The ratings of these SOEs largely reflect their standalone credit strength, with only limited or no rating uplift for assumed government support, reflecting their relatively low importance.

Subscribers can access the report here: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1008195

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 Water Sector: Regulatory Reform Will Drive Infrastructure Investment and Industry Consolidation

• Reinsurance Market in China -- Underlying Demand to Support Growth Despite Slowing Economy

• China Securitization: Revolving Structure Sets Precedent for SME Securitization by Chinese Banks

• Chinese Banks: 1H 2015 Results Show Rising Pressure on Operations

• Chinese Regional and Local Government Debt Update Shows Credit-Negative Rise in Leverage

• China Broadens Provincial Pension Fund Investment Options, a Credit Positive

• Chinese Securities Firms: Lower Stock Prices Prompt Drop in Margin Financing Activity but Weigh on Firms' Credit Profiles

• China Property Focus -- August 2015

• Chinese Banks: China's Latest Rate Cuts Will Alleviate Liquidity Pressure in the Banking System

• Property -- China: Rated Developers Have Headroom to Withstand Modest RMB Depreciation

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 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.

Gary Lau
MD - Corporate Finance
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

Kai Hu
Senior Vice President
Corporate Finance Group
JOURNALISTS: 86-21-2057-4020
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: Reform supports credit quality of rated SOEs
No Related Data.
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