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Rating Action:

Moody's affirms Beijing Infrastructure's A1 issuer rating; changes outlook to stable

 The document has been translated in other languages

24 May 2017

Hong Kong, May 24, 2017 -- Moody's Investors Service has affirmed the A1 issuer rating of Beijing Infrastructure Investment Co., Ltd. (BII). Moody's has also affirmed the A2 backed senior unsecured rating on the USD bond issued by BII's wholly owned subsidies, Eastern Creation Investment Holdings Ltd, and the (P)A2 backed senior unsecured MTN program rating and A2 backed senior unsecured ratings of the drawdowns under Eastern Creation II Investment Holdings Ltd.

At the same time, Moody's has changed the outlook on the above ratings to stable from negative.

RATINGS RATIONALE

"The ratings affirmation and change in outlook to stable primarily reflect our expectation that BII will continue to receive a very high level of support from the Beijing Municipal Government, due to its significant public policy role," says Ada Li, a Moody's Vice President and Senior Analyst.

On 24 May 2017, Moody's downgraded China's sovereign rating to A1 from Aa3 and changed the outlook to stable from negative.

"Notwithstanding the sovereign rating downgrade, BII will continue to play a critical role in executing Beijing's public transport policies; specifically, in its ownership, building and operating of Beijing's subway and rail system," adds Li. "These public services are of national importance and are not commercially viable."

"The company will therefore continue to receive ongoing and predictably high levels of fiscal support from the Beijing Municipal Government, and ultimately the China central government" Li says, adding "These factors support BII's A1 rating and stable outlook".

BII's A1 issuer rating incorporates: (1) its baseline credit assessment (BCA) of baa2; and (2) a four-notch uplift, based on Moody's expectation that BII will receive extraordinary support from the Beijing Municipal Government — and potentially the central government — when needed.

BII has a long track record of receiving annual grants and subsidies from the Beijing government to fund its capex, for debt servicing and operating losses. Moody's expects BII will receive RMB29.5 billion in grants and subsides annually from the Beijing Municipal Government's fiscal budget, based on a concession agreement signed between the government and the company.

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

The A2 rating of the issuing entities is one notch lower than BII's A1 rating, reflecting the absence of a guarantee from BII, but the presence of keepwell support agreements, liquidity support deeds and deeds of equity interest purchase undertaking.

Upward rating potential for BII's issuer rating is limited, given that the A1 rating is at par with China's sovereign rating. , but it may emerge if China's sovereign rating is upgraded.

Downward rating pressure could emerge if: (1) a deterioration occurs in the Beijing Municipal Government's credit quality and/or negative rating actions occur on China's sovereign rating; (2) signs of a weakening in the government's willingness to support BII occurs; and/or (3) material changes occur in ongoing government financial support, for example, the annual government grant is inadequate to cover BII's annual interest expenses, which will pressure the company's BCA.

Similarly, any weakening in the public policy role that the company plays in the city's urban transportation policy could lead to a weakening of its credit quality.

The methodologies used in these ratings were Global Mass Transit Enterprises Methodology published in February 2015, and Government-Related Issuers published in October 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Beijing Infrastructure Investment Co., Ltd. (BII) is authorized by the Beijing Municipal Government to undertake the construction, investment, financing and operation of the subway system in Beijing. At end-2016, there were 19 interconnecting lines in operation in the Beijing urban rail transit system, totaling 574km. Of the total number of lines, BII operated 15, making it the second largest subway network in China by operating mileage.

BII is wholly owned by the Beijing Municipal Government and was formed in November 2003.

REGULATORY DISCLOSURES

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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

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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