Hong Kong, November 03, 2022 -- Moody's Investors Service has affirmed Beijing Infrastructure Investment Co., Ltd.'s (BII) A1 issuer rating.
At the same time, Moody's has also affirmed the following ratings:
1. The provisional (P)A1 rating on Eastern Creation II Investment Holdings Ltd.'s senior unsecured medium-term note (MTN) program, which is guaranteed by BII; and the A1 senior unsecured debt ratings on the notes issued under the MTN program;
2. The provisional (P)A2 rating on Eastern Creation II Investment Holdings Ltd.'s senior unsecured MTN program, which is guaranteed by Beijing Infrastructure Investment (Hong Kong) Limited, a wholly-owned subsidiary of BII; and the A2 senior unsecured debt rating on the notes issued under the MTN program. The notes are also supported by a keepwell and liquidity support deed, and deed of equity interest purchase undertaking between BII, Eastern Creation II Investment Holdings Ltd., BII HK and the bond trustee.
The rating outlook is stable.
"The rating affirmation reflects BII's strategically important role in owning, constructing and operating the capital city's metro and public transportation systems. These activities are supported by exceptionally strong and predictable government payments from the Beijing municipal government's fiscal budget," says Cedric Lai, a Moody's Vice President and Senior Analyst.
RATINGS RATIONALE
BII's A1 issuer rating incorporates the Beijing municipal government's capacity to support (GCS) score of a1; and Moody's assessment of how BII's characteristics affect the Beijing municipal government's propensity to provide support, which result in no notching adjustment.
Beijing's GCS score reflects the capital city's status as a municipality in China (A1 stable); its position at the top of the administrative structure, with direct reporting lines to the central government; and its relatively strong credit profile.
BII's A1 rating reflects the Beijing government's propensity to provide support to the company. This is based on BII's primary role in owning, constructing and operating the capital city's metro and public transportation systems, which are not commercially viable but are essential, nationally important public services. BII is wholly owned and closely managed by the Beijing municipal government, and its metro projects are approved by China's central government. The company receives exceptionally strong and predictable government payments from the Beijing municipal government's fiscal budget that cover BII's operating losses, part of its debt service and capital expansion requirements.
The rating also considers the company's moderate debt increase and exposure to commercial activities, such as property development.
Moody's expects BII to continue receiving government cash payments to support its substantial investments in metro and rail projects in Beijing and to compensate any operating losses from its metro operations.
In 2021, BII received around RMB29.5 billion from the government, based on the authorize-build-operate (ABO) agreement. In 2022, the government reviewed the ABO agreement and increased the annual payment to RMB32.2 billion.
Moody's expects BII's annual capital spending for public policy projects to be around RMB60 billion-RMB70 billion in 2022 and 2023, which will be partly funded by debt. The agency forecasts that the company's debt will grow 10% in 2022-23.
The rating also considers the following environmental, social and governance (ESG) factors.
BII bears high social risks as it is mandated to build, own and operate essential public infrastructure. Demographic changes, public awareness and social priorities shape the government's targets for BII, and affect the Beijing municipal government's propensity to support the company.
Governance considerations are also significant to the ratings, as BII is subject to oversight by the Beijing municipal government and must meet its reporting requirements. This reflects its public policy role and status as a government-owned entity. In particular, the rating considers BII's governance through the execution of metro and transportation policies, and the Beijing municipal government's fiscal allocations.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook on BII's rating reflects the stable outlook on the Chinese government's rating; Moody's expectation that the Beijing municipal government's GCS will remain stable; and that BII's business profiles and integration with, as well as control and oversight by the Beijing municipal government, will remain largely unchanged over the next 12-18 months.
The potential for upward pressure on BII's issuer rating is limited, given that the A1 rating is on par with China's sovereign rating.
Moody's could downgrade BII's rating if: (1) China's sovereign rating is downgraded or the Beijing municipal government's GCS is reduced because of a significant weakening in its economic or financial profile, or in its ability to coordinate timely support; (2) changes in the Chinese government's policies prohibit the Beijing municipal government from providing financial support to BII; or (3) BII's LGFV-specific characteristics change in a way that weaken the Beijing municipal government's propensity to support the company, for example:
– significant adverse changes in the ongoing government support mechanism that weaken the adequacy and timeliness of government payments on a sustained basis;
– a significant weakening in BII's policy functions; or
– significant changes in the company's core businesses, including a substantial expansion into commercial activities at the cost of public services, or substantial losses in commercial activities.
The principal methodology used in these ratings was Local Government Financing Vehicles in China Methodology published in April 2022 and available at https://ratings.moodys.com/api/rmc-documents/386644. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Beijing Infrastructure Investment Co., Ltd. (BII) is authorized by the Beijing municipal government to own, invest in, finance and operate the subway system in Beijing. It was formed in November 2003 and is wholly owned by the Beijing State-owned Assets Supervision and Administration Commission (SASAC).
As of the end of 2021, Beijing's urban rail transit system consisted 27 interconnecting lines totaling 783 kilometers (km) in operation, of which BII owned and operated 21 lines. The company's daily passenger traffic exceeded 8.4 million in 2021. Its reported assets totaled RMB780.4 billion as of the end of 2021.
The local market analyst for these ratings is Yan Li, +86 (10) 6319 6572.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 issuer/deal page for the respective issuer on https://ratings.moodys.com.
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
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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.
Cedric Lai
Vice President - Senior Analyst
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
Client Service: 852 3551 3077
Ivan Chung
Associate Managing Director
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
