Hong Kong, September 12, 2018 -- Moody's Investors Service has today affirmed the ratings of 36 Chinese
nonfinancial corporate and infrastructure government-related issuers
(GRIs) owned by regional and local governments (RLGs), and rated
GRI subsidiaries.
These rating actions reflect Moody's updated view on the likelihood
of support for RLG GRIs in light of the ongoing efforts of the Chinese
government (A1 stable) to limit the ways in which support can be provided
to them by the RLG owners or other entities.
The 36 issuers comprise 28 RLG GRIs and eight GRI subsidiaries.
At the same time, Moody's has upgraded the baseline credit
assessments (BCA) of eight RLG GRIs.
The outlook on all ratings are maintained.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_200615
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_200615
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
Principal Methodologies
Local Market Analyst
LIKELIHOOD OF SUPPORT IS REDUCING BUT REMAINS MATERIAL
The central government has issued a series of policy statements over the
past two years - the latest in March 2018 - aimed at limiting
the ways in which support can be provided to GRIs owned by RLGs.
These policy initiatives have reinforced the close oversight of this sector
by the central government, its desire to reduce leverage in the
sector and the contingent liabilities of RLGs, and its strong focus
on reducing moral hazard over time. As a result, Moody's
sees a reduced likelihood of support for the sector as a whole.
At the same time, Moody's says the likelihood of support continues
to be a material consideration in its assessment of the credit quality
of the more important GRIs, given the importance of issuers in this
sector for the national economy, especially in the implementation
of national policies and objectives.
In addition, the sector poses systemic risks, given its large
amount of debt outstanding, and which implies that the central government
is unlikely to allow large and important GRIs to default.
This situation supports Moody's view that, while the likelihood
of support is reducing, it nevertheless remains an important component
of the credit quality for the larger, higher profile GRIs,
owned by the most important RLGs.
CENTRAL GOVERNMENT RATING IS A BETTER INDICATOR FOR ASSESSING SUPPORT
In addition, Moody's now believes that the A1 China central
government rating is a better indicator for assessing support, rather
than the RLGs' own credit profiles.
Policy announcements from the central government clearly demonstrate that
it controls the decision-making process around support for RLG-owned
GRIs.
Furthermore, the central government controls the likelihood of support
occurring in any material way, given the centrally planned nature
of the Chinese economy. This support can take various forms,
including government subsidies, capital or asset injections,
and loans from policy as well as state-owned banks.
As such, Moody's believes the rating of the central government
is a better indicator for the credit strength underlying any support that
might be forthcoming and that the most important considerations in assessing
the likelihood of support are the importance of a given GRI to national
and regional policy objectives and the priorities set by the central government.
RLG OWNERSHIP AND GRI ACTIVITY STILL DRIVE SUPPORT ASSESSMENT
As stated, Moody's opinion is that larger GRIs carrying out
activities important to national priorities and owned by the most important
RLGs are more likely to receive support. These entities are more
likely to be carrying out higher profile national public policies,
such as those linked to social welfare or national economic development
and constitute large issuers of debt in the domestic markets.
As such, a failure by one of these entities would risk a broader
systemic problem in the debt markets, which could also materially
impact economic activity. On the other hand, entities carrying
out more commercial activities, and which constitute a smaller size
with less debt outstanding, and/or are owned by lower level RLGs
are less likely to receive support.
STANDALONE CREDIT PROFILES IMPROVING FOR SOME GRIs, LIMITING RATING
IMPACT
Policies aimed at reducing leverage in the RLG GRI sector have motivated
RLG owners to take actions to improve the standalone credit profiles (i.e.
BCAs) of some GRIs. These actions include RLG bonds for debt swap
programs, establishing mechanisms with greater predictability in
respect of government subsidies and payments, and injecting cash-generating
assets into these GRIs. As a result, for some GRIs,
Moody's sees improving BCAs balancing some of the impact of reduced
expectation of support.
DETAILS OF RATING ACTIONS
The ratings affirmation of 28 RLG GRIs reflects the following considerations:
1) the expectation of support for 19 GRIs remains intact in times of need
because their respective business activities and relative importance have
not materially changed; and 2) for other GRIs, their ratings
are resilient to a lower support level, or are unaffected by a strengthening
in their BCAs, under Moody's assessment, which includes
joint default analysis. For individual details of these 28 RLG
GRIs, please refer to the attached List of Affected Credit Ratings.
Moody's has lowered its expectation of support to "High"
from "Very High" for two GRIs. These companies have
limited direct central government oversight, but are focused on
the regional implementation of national priorities for important public
welfare activities, such as urban development and infrastructure
construction.
The ratings of these two GRIs have been affirmed because the lower expectation
of support is balanced by a strengthening in their standalone credit profiles.
Moody's has also lowered its expectation of support to "Strong"
from "High" for seven rated RLG GRIs. These companies'
core activities are less prominent and less economically significant than
the public welfare activities of the above two entities, and/or
lack a strong linkage to national priorities.
The ratings of these seven GRIs have been affirmed because: 1) the
lower expectation of support is balanced by a strengthening in their standalone
credit profiles, or 2) they are resilient to the lower expectation
of support under Moody's assessment, which includes joint
default analysis.
Moody's has upgraded the BCAs of eight GRIs, mainly driven
by a strengthening in their credit metrics, based on the improved
track records of the RLGs providing predictable and recurring fiscal allocations.
Such ongoing funding support is incorporated into the BCAs of these GRIs.
Moody's has also lowered its assessment of dependence for 18 GRIs
to "High" from "Very High", given their
less direct financial linkage to the central government --
compared with the RLG owners -- but this change in dependence
has no impact on their ratings. The dependency level of the remaining
10 GRIs remains unchanged at "High".
Moody's has also affirmed the ratings of eight GRI subsidiaries
on the basis that their respective GRI parents' credit profiles
are not affected by our updated view on likelihood of support for RLG
GRIs, and the credit profiles of these GRI subsidiaries continue
to support their ratings.
The stable outlooks for 28 GRIs and seven rated subsidiaries reflect 1)
the stable outlook on the sovereign rating; and 2) the consideration
that these companies' BCAs or standalone credit profiles are appropriately
positioned at their current levels.
The negative outlook on Yuexiu Property Company Limited reflects the high
debt leverage of its GRI parent, Guangzhou Yuexiu Holdings Limited,
which provides a 2-notch parental uplift to its Baa3 rating.
The ratings could be upgraded, if (1) Moody's view of the
likelihood of support for the GRIs or the GRI subsidiaries increases,
and/or (2) these companies' BCAs or standalone credit profiles improve
significantly.
The ratings could be downgraded if (1) Moody's view of the likelihood
of support for the GRIs or the GRI subsidiaries decreases, and/or
(2) these companies' BCAs or standalone credit profiles weaken meaningfully.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_200615
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Person Approving the Credit Rating
• Lead Rating Analyst
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entities are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
ratings process. Please refer to www.moodys.com for
the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Ada Li
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
Gary Lau
MD - Corporate Finance
Corporate Finance Group
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
