Hong Kong, October 28, 2022 -- Moody's Investors Service has affirmed Chengdu Tianfu New Area Investment Group Co., Ltd's (Chengdu Tianfu) Baa2 issuer rating and the Baa2 senior unsecured rating on the bond issued by the company.
The rating outlook remains stable.
"The rating affirmation reflects Chengdu Tianfu's status as the only entity mandated by the Chengdu city government to develop the Tianfu-Chengdu Region, and its track record of receiving government cash payments to support the company," says Chenyi Lu, a Moody's Vice President and Senior Credit Officer.
RATINGS RATIONALE
Chengdu Tianfu's Baa2 issuer rating incorporates (1) Chengdu's Governmental 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 provide it support, resulting in a two-notch downward adjustment.
Chengdu's GCS score reflects (1) its status as a provincial capital, which is one of the higher administrative levels in Moody's assessment of the hierarchy of regional and local governments (RLGs) in China (A1 stable); and (2) its relatively high contingent liability risks from its state-owned enterprises (SOEs), although offset by its large and diverse economy.
Chengdu Tianfu's Baa2 rating reflects (1) the Chengdu government's propensity to support the company, based on its 100% ownership by the Fiscal and Finance Bureau of the Sichuan Tianfu New Area Management Committee; (2) the company's status as the sole entity developing and operating the Chengdu Region of the Sichuan National Tianfu New Area (Tianfu-Chengdu Region); and (3) its track record of receiving government cash payments, and its strong access to funding.
The Tianfu-Chengdu Region has developed relatively quickly since the Sichuan Tianfu National New Area was established in 2014. The area is increasingly important to the city's economic and social development. In December 2021, the central government approved the Sichuan Tianfu National New Area's Park City pilot development project, under which the area will be built according to strict ecological environment and double carbon development standards. Moody's believes Chengdu Tianfu will take greater responsibility in carrying out the related infrastructure construction.
However, the two-notch downward adjustment from Chengdu government's GCS score reflects (1) Chengdu Tianfu's geographic coverage in Chengdu city, and (2) its medium exposure to and investment in commercial activities.
The company has a history of receiving government cash payments in the form of management fees and repurchases of constructed infrastructure, capital injections and operating subsidies. It received total government payments of around RMB55 billion during 2017-21.
These cash payments can cover most of the company's annual investments in infrastructure projects. Moody's expects this trend to continue.
The rating considers the following environmental, social and governance (ESG) factors.
Chengdu Tianfu is exposed to low environmental risks via its infrastructure projects. Such risks could be moderated by environmental studies and planning before the commencement of projects, and close supervision during the construction phase.
The company bears high social risks as it implements public-policy initiatives by building public infrastructure in Chengdu city. Demographic changes, public awareness and social priorities shape Chengdu Tianfu's development targets and ultimately affect the Chengdu city government's propensity to support the company.
Governance considerations are also material to the rating, as Chengdu Tianfu is subject to oversight by the Chengdu city government and must meet its reporting requirements, reflecting its public-policy role and status as a government-owned entity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Chengdu Tianfu's stable rating outlook reflects (1) the stable outlook on China's A1 sovereign rating; (2) Moody's expectation that Chengdu's GCS score will remain stable; and (3) Moody's view that the company's business profile and integration with the Chengdu government, and the Chengdu government's control and oversight of the company, will remain largely unchanged over the next 12-18 months.
Moody's could upgrade Chengdu Tianfu's issuer rating if (1) China's sovereign rating is upgraded or Chengdu's GCS score strengthens, which could arise from a significant strengthening in the city's economic or financial profile, or its ability to coordinate timely support; or (2) the company's characteristics change in a way that strengthens the Chengdu government's propensity to support, such as:
– Chengdu Tianfu becomes more strategically important to the Chengdu government by shouldering more responsibility, or the Tianfu-Chengdu Region's economic contribution to Chengdu city increases; and
– An increase in government payments and an improvement in the predictability of government payment mechanisms, whereby dedicated fiscal budget allocations and transfers from higher-tier governments can consistently cover a large share of the company's operational and debt-servicing needs.
Moody's could downgrade Chengdu Tianfu's issuer rating if: (1) China's sovereign rating is downgraded or Chengdu's GCS score weakens, which could arise from a significant weakening in Chengdu's economic or financial profile, or its ability to coordinate timely support; (2) changes in the Chinese government's policies prohibit RLGs from providing financial support to local government financing vehicles (LGFVs); (3) the company's characteristics change in a way that weakens the Chengdu government's propensity to support, such as through:
– Significant changes in Chengdu Tianfu's businesses, including substantial expansions into commercial activities at the cost of public services; or substantial losses in commercial activities;
– A decline in its position as the largest and dominant public service provider in the Tianfu-Chengdu Region; or
– A rapid increase in its debt and leverage with fewer corresponding government payments, and an increase in its reliance on borrowing from nonstandard channels.
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.
Chengdu Tianfu New Area Investment Group Co., Ltd (Chengdu Tianfu) was 100% owned by the Fiscal and Finance Bureau of the Sichuan Tianfu New Area Management Committee under the Sichuan provincial government as of the end of 2021. The company is ultimately controlled by the Chengdu city government because the city government is entrusted by the Sichuan provincial government to manage and supervise the Management Committee. Chengdu Tianfu is the only entity mandated by the government to develop the Tianfu-Chengdu Region. It is primarily in charge of urban infrastructure construction and industrial property development within the Tianfu-Chengdu Region. As of the end of 2021, the company reported total assets of RMB148.3 billion.
The local market analyst for this rating 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 on https://ratings.moodys.com/rating-definitions.
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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.
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
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
