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.
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This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
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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.)
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Kai Hu
Senior Vice President
Corporate Finance Group
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Moody's: Reform supports credit quality of rated SOEs