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Rating Action:

Moody's affirms Chengdu High-Tech Investment's ratings, changes outlook to positive

 The document has been translated in other languages

27 Aug 2021

Hong Kong, August 27, 2021 -- Moody's Investors Service has changed to positive from stable the outlook on Chengdu High-Tech Investment Group Co. Ltd. (Chengdu Hi-tech).

At the same time, Moody's has affirmed Chengdu Hi-tech's Baa3 issuer rating and the Baa3 senior unsecured rating assigned to the USD bonds issued by Chengdu Hi-tech.

"The change in outlook to positive reflects the favorable trends in Chengdu Hi-tech's strategic importance in Chengdu city and debt management,'' says Chenyi Lu, a Moody's Vice President and Senior Credit Officer.

"We expect that the company's strategic importance will be further enhanced through its increasing contribution to the development of new technological zone. We also expect the continuing rollout of the company's talent apartment projects will lessen its need to incur incremental debt, improving its debt management prospects," adds Lu.

RATINGS RATIONALE

Chengdu Hi-tech's Baa3 issuer rating is based on (1) the Chengdu government's capacity to support (GCS) score of a3 and (2) Moody's assessment of how the company's characteristics affect the Chengdu government's propensity to support, resulting in a three-notch downward adjustment.

Chengdu Hi-tech will expand their infrastructure investment over the next five years, notably the area surrounding the newly built Chengdu Tianfu International Airport, also known as Future Technology City. Moody's believes the company's policy function and importance in Chengdu city will be further enhanced through undertaking these new projects.

To support Chengdu city government's investment in the high-tech industry, Chengdu Hi-tech is building talent apartments in Chengdu High-tech Industrial Development Zone (the zone). Such talent apartment projects could help attract more talents to Chengdu and receive different regulatory treatment compared with commercial property projects.

In addition, as several major talent apartment projects will be ready for presales in the following months, Moody's expects the sale proceeds can support the upcoming phases of talent apartment construction, reducing the group's incremental debt growth. Moody's expects the company's overall debt growth to gradually slow down over the next six to 12 months, potentially improving its debt management.

Also, Moody's considers Chengdu Hi-tech continues to have strong funding to access and manageable contingent liability exposure.

Moody's assessment of the Chengdu GCS score reflects (1) Chengdu's status as a provincial capital, one of the higher administrative levels in Moody's assessment of the hierarchy of regional and local governments (RLGs) in China, and (2) its relatively high contingent liability risks from state-owned enterprises (SOEs), although offset by its large and diverse economy.

Chengdu Hi-tech's Baa3 issuer rating also reflects the Chengdu government's propensity to support the company because of (1) Chengdu Hi-tech's majority ownership by Chengdu Hi-tech Administrative Committee under the Chengdu government, (2) its leading role in investing in and developing and operating the zone, and (3) track record of receiving recurrent government payments to pre-fund its infrastructure investments and support other activities, which totaled RMB24 billion in 2018-2020.

However, the three-notch downward adjustment from Chengdu's GCS score reflects Chengdu Hi-tech's (1) exposure to commercial activities, and (2) fast debt growth to support the development of the Chengdu High-Tech Zone.

The rating also takes into account the following environmental, social and governance (ESG) factors.

Chengdu Hi-tech bears high social risks because it implements public-policy initiatives by building public infrastructure in Chengdu city. Demographic changes, public awareness and social priorities shape Chengdu Hi-tech's development targets and ultimately affect Chengdu government's propensity to support the company. Chengdu Hi-tech's involvement in the talent apartment projects helps to achieve local government's targets to attract more talent, prevent population migration and develop high-tech industries in Chengdu.

Governance considerations are also material to the rating, as Chengdu Hi-tech is subject to oversight and reporting requirements to its owner RLG, reflecting its public policy role and status as a government-owned entity. Chengdu Hi-tech is exposed to low environmental risks.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could upgrade the rating if China's sovereign rating is upgraded or Chengdu city government's GCS score improves, which could be a result of a significant strengthening in Chengdu's economic or financial profile, or its ability to coordinate timely support.

The rating could be upgraded if Chengdu Hi-tech's characteristics change in a way that enhances the Chengdu government's propensity to support. This could be the result of (1) an increase in its strategic significance to Chengdu and higher-tier government; (2) an improvement in debt management of the company's capital expenditure relative to government cash payments; or (3) overall risk profile of its commercial operations and exposures and investments in commercial activities becomes more manageable compared with its public-policy assets.

A downgrade is unlikely given the positive outlook. However, the outlook could return to stable if the abovementioned positive credit trends reverse. For example, if the company were to aggressively expand its commercial business and the risk from its commercial business increases; or the company's debt and leverage rapidly increase without a corresponding rise in government payments, leaving it reliant on higher-cost financing, including through non-standard channels.

Because Chengdu Hi-tech's rating is based on Chengdu government's GCS score, the rating could also be downgraded if China's sovereign rating is downgraded, or if the Chengdu government's capacity to support weakens, which could be a result of a material worsening in Chengdu's economic or financial profile, or in the government's ability to coordinate timely support. Changes in the Chinese government's policies that prohibit governments from supporting local government financing vehicles will also affect the rating.

The principal methodology used in these ratings was Local Government Financing Vehicles in China Methodology published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216254. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

As of August 2021, Chengdu High-Tech Investment Group Co. Ltd. (Chengdu Hi-tech) is 90% owned by the Chengdu High-Tech Zone Administrative Committee under the Chengdu government. The Sichuan Provincial Finance Department owns the remaining 10% stake.

Chengdu Hi-tech primarily develops and operates the zone, mainly including infrastructure construction, provision of industrial and office properties for companies and construction of talent apartment projects for talents moving into the zone. It's also engaged in industrial investment under government guidance, trading and construction business, which are mainly to serve local infrastructure needs. The company reported revenue and total assets of RMB10.3 billion and RMB125 billion, respectively, in 2020.

The local market analyst for these ratings is Sarah Xu, +86 (212) 057-4030.

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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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 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.

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 www.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 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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 www.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 www.moodys.com.

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.

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

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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