Hong Kong, July 20, 2022 -- Moody's Investors Service has affirmed the A1 issuer rating of CRRC Corporation Limited.
The rating outlook remains stable.
The affirmation of CRRC's rating with a stable outlook reflects Moody's expectation that continued demand for CRRC's products and services given the Chinese government's ongoing railway and urban rail investment plans will support CRRC's credit profile over the next 12-18 months.
RATINGS RATIONALE
CRRC's A1 issuer rating incorporates its standalone credit profile and a two-notch uplift reflecting Moody's expectation of a very high likelihood of extraordinary support from the Government of China (A1 stable) through CRRC's parent, CRRC Group Corporation (CRRCG), in times of need. CRRCG is 100% owned by the State-Owned Assets Supervision and Administration Commission of the State Council of China.
CRRC's standalone credit profile is supported by the company's (1) leading scale and dominant market position in the railway rolling-stock industry in China; (2) defensible operating profile in the Chinese market, which has high barriers to entry; (3) resilient demand prospects, underpinned by China's railway and urban rail investment plans, and global expansion opportunities; (4) solid financial profile; and (5) excellent liquidity profile.
However, the company's standalone credit profile is constrained by its (1) concentrated exposure to China's railway infrastructure spending; and (2) international expansion, which entails rising competition, geopolitical risks and project execution risks.
Moody's forecasts CRRC's debt leverage, as measured by adjusted debt/EBITDA, will slightly increase to around 2.5x in 2022 from 2.2x in 2021, because of the negative impact of the Omicron outbreak on the company's earnings. Railway passenger transport volume declined significantly under strict travel restrictions during the first five months of 2022, leading to a drop in sales from certain products of CRRC. Moody's expects CRRC's revenue to partially recover in the second half (H2) of 2022, as more policy measures are introduced to stimulate economic growth, particularly in railway spending, which will support demand for CRRC's products and services.
Moody's projects CRRC's revenue and EBITDA will slightly rise in 2023, which is supported by its strong order backlog and the government's continued support for railway investments. With higher EBITDA, the company's leverage will decline to around 2.2x by the end of 2023.
Moody's support assessment reflects CRRC's close linkage with CRRCG given CRRC represents almost all of CRRCG's business operations, accounting for 95% and 89% of its consolidated revenue and reported assets, respectively, in 2021.
Moody's expects the very high level of support to CRRC from the Government of China would flow through CRRCG because (1) CRRC dominates China's rolling-stock industry and constitutes a strategically important component of China's transportation infrastructure; (2) CRRCG and CRRC play critical roles in executing China's domestic infrastructure development plans, as well as China's Belt and Road Initiative; and (3) CRRCG and CRRC together represent China's high-end equipment-manufacturing capabilities on the global stage. As such, a default by CRRC would bring reputational risk for the Chinese government. The support assumption also factors in the Chinese government's strong ability to provide support, as reflected by its A1 sovereign rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade CRRC's rating if the Chinese government's ability to provide support to the company through its parent strengthens, which would be indicated by an upgrade of China's sovereign rating.
An improvement in the company's standalone credit profile would not necessarily result in an upgrade of the rating, because the company is already rated on par with the Chinese government.
Moody's could downgrade CRRC's rating if the Chinese government's ability to provide support to the company through the parent weakens, which would be indicated by a downgrade of China's sovereign rating.
CRRC's rating would also come under downgrade pressure if its standalone credit profile deteriorates such that its profitability decreases or debt increases, or both, and its adjusted debt/EBITDA remains above 2.5x-3.0x on a sustained basis.
However, a moderate weakening of the company's standalone credit profile would not necessarily result in a rating downgrade, because the very high likelihood of extraordinary support from the Chinese government through CRRCG provides a buffer against the pressure on its standalone credit profile.
The principal methodology used in these ratings was Manufacturing published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74970. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
CRRC Corporation Limited (CRRC) is listed on both the Hong Kong and Shanghai stock exchanges. As of the end of 2021, it was 51.35% owned by CRRC Group Corporation, which was 100% owned by the Chinese government. CRRC is the leading producer of locomotives, passenger carriages, freight wagons, electric multiple units (EMUs) and rapid transit vehicles (RTVs) in China. The company also provides rolling-stock-related services and manufactures wind power equipment, new materials and construction machinery.
The local market analyst for this rating is Mike Zhu, +86 (010) 6319-6506.
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.
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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
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 entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to https://ratings.moodys.com for the Regulatory Disclosures for each credit rating action, shown on the issuer/deal page, and for Moody's Policy for Designating Non-Participating Rated Entities, shown on https://ratings.moodys.com.
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.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.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 issuer/deal page on https://ratings.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.
Chenyi Lu
VP - Senior Credit Officer
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
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Clement Cheuk Yiu Wong
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