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Announcement:

Moody's: Shanghai International Port's 1H 2017 results are in line with its A1 issuer rating

31 Aug 2017

Hong Kong, August 31, 2017 -- Moody's Investors Service says that Shanghai International Port (Group) Co., Ltd's (SIPG) 1H 2017 results are consistent with its A1 issuer rating. The rating outlook is stable.

"SIPG's 1H 2017 results reflect the improvement in container and bulk and breakbulk throughput volumes and the stable margin for its port and related businesses," says Osbert Tang, a Moody's Vice President and Senior Analyst.

"The company maintains a strong credit profile with a moderate level of financial leverage, and we expect its credit metrics will remain consistent with its A1 issuer rating over the next 12-18 months," Tang says, who is also the local market analyst for SIPG.

SIPG's revenue rose by 8.4% year-on-year (YoY) to RMB16.7 billion in 1H 2017, driven by the improvement in performance from container and bulk and breakbulk handling, as well as its port logistics and port service businesses.

In 1H 2017, SIPG's total container throughput increased 9.6% to 19.6 million 20-foot equivalent units (TEUs), mainly driven by the recovery in domestic and international trade activities starting from 2H 2016. For bulk and breakbulk cargoes, throughput rose by a significant 20.1% to 84 million tons, partly due to a low base in 1H 2016 and stabilizing demand for commodities in China over this period.

However, the company's reported gross margin declined to 30.2% in 1H 2017, down from 32.6% in 1H 2016, mostly due to lower margins for its non-port businesses. Its container handling and port logistics businesses achieved stable gross margins in 1H 2017. Also, gross margins for bulk and breakbulk cargo handling recovered to 11.9% in the period, compared with just 5.4% in 1H 2016.

SIPG's overall adjusted debt was RMB37.7 billion at end-June 2017, a decline of 9.0% from end-2016, driven by an improvement in cash inflow and less debt-funded capex in 1H 2017. In particular, SIPG received RMB2.1 billion in cash dividends from its equity investments in property projects, which is also captured within Moody's adjusted funds from operations (FFO).

Accordingly, its FFO/debt and debt/book capitalization were at 26.0% and 35.3% respectively for the 12 months ending June 2017, an improvement from 19.6% and 37.5% at end-2016.

Following the investment in a 4.1% stake in Post Savings Bank of China Co., Ltd in September 2016, SIPG engaged in a debt-funded general offer to acquire Orient Overseas (International) Limited (OOIL) in July 2017 together with COSCO Shipping Holdings Co., Ltd. Moody's estimates the maximum consideration payable for the transaction by SIPG to be around RMB4.2 billion, equivalent to 9.9% shareholding of OOIL. The company's increase in investments in non-port assets are expected to raise its business and financial risks, and Moody's will continue to monitor the company's evolving investment strategy.

Moody's expects SIPG's adjusted FFO/debt will be at around 22%-28% and adjusted FFO/interest coverage to range over 6.0x to 7.5x in the next 12-18 months. Such projected metrics remain within the thresholds of its current A1 issuer rating, which incorporates a one-notch uplift for the support of the Shanghai government.

The stable rating outlook reflects: (1) the stable outlook on China's (A1 stable) sovereign rating; (2) the consideration that SIPG continues to enjoy support from its owner government; and (3) the fact that SIPG's baseline credit assessment (BCA) remains appropriately positioned at the current level.

The methodologies used in this rating were Privately Managed Port Companies published in September 2016, and Government-Related Issuers published in August 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Shanghai International Port (Group) Co., Ltd (SIPG) is the dominant player in the Port of Shanghai, the largest container port globally by throughput volume. It handled 19.6 million 20-foot equivalent units (TEUs) in 1H 2017.

The company was 59.78% directly and indirectly owned by the Shanghai State-owned Assets Supervision and Administration Commission at 30 June 2017. China Merchants Port Holdings Company Limited (Baa1 negative) was the second-largest shareholder, with a total stake of 25.15% at end-June 2017.

The Local Market analyst for this rating is Osbert Tang, +86 (21) 2057-4019.

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.

Ralph Ng
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

Terry Fanous
MD-Public Proj & Infstr Fin
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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