Hong Kong, September 23, 2022 -- Moody's Investors Service has affirmed Hunan Xiangjiang New Area Development Group Co., Ltd's Baa2 issuer rating and the Baa2 senior unsecured rating on the bond issued by the company.
The rating outlook is stable.
"The rating affirmation reflects Hunan Xiangjiang's dominant role in developing Hunan Xiangjiang National New Area and its track record of receiving government cash payments to support the company", says Chengyi Lu, a Moody's Vice President and Senior Credit Officer.
RATINGS RATIONALE
Hunan Xiangjiang's Baa2 rating incorporates the Changsha government's capacity to support (GCS) score of a3, and Moody's assessment of how the company's characteristics affect the Changsha government's propensity to support, resulting in a two-notch downward adjustment.
Changsha's GCS score reflects its status as the capital of Hunan, a moderate-risk province in central China (A1 stable); its sound fiscal profile, with a low reliance on net transfers, low direct debt burden and moderate state-owned enterprise (SOE) liabilities; and its large economy, which indicates greater diversification and capacity to absorb shocks.
The Baa2 ratings consider (1) Moody's expectation of the Changsha government's propensity to support the company, given the government's effective control of Hunan Xiangjiang, (2) the company's dominant role as the largest platform for primary land development and infrastructure construction in Hunan Xiangjiang National New Area, and (3) its established track record of receiving government cash payments.
However, the two-notch downward adjustment from the city's GCS score reflects Hunan Xiangjiang's debt growth related to its investment in the Xiangjiang New Area, and its moderate exposure to commercial activities.
Moody's expects the company to continue receiving government cash payments, in the form of operating subsidies, government bond allocations, cash injections and land cost refunds, to support its capital spending and debt payments for public-policy-related investments. In 2021, Hunan Xiangjiang received around RMB8.7 billion in total government cash payments.
Moody's forecasts Hunan Xiangjiang's annual capital spending will be around RMB14 billion-RMB15 billion over the next 12 months, which will be partly funded by debt. The agency expects the company's debt to grow to RMB37 billion-RMB40 billion over the next 12-18 months.
The rating also considers the following environmental, social and governance (ESG) factors.
Hunan Xiangjiang bears high social risks as it implements public policy initiatives by building public infrastructure in Xiangjiang National New Area. Demographic changes, public awareness and social priorities shape the company's development targets and ultimately affect the Changsha city government's propensity to support the company.
Governance considerations are also material to the ratings, as Hunan Xiangjiang is subject to oversight by and reporting requirements to its owner regional local government (RLG), reflecting its public policy role and status as a government-owned entity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook on Hunan Xiangjiang's rating reflects (1) the stable outlook on China's sovereign rating; (2) Moody's expectation that the Changsha government's GCS score will remain stable; and (3) Moody's view that the company's business profile and integration with the Changsha government and the government's control and oversight of the company will remain largely unchanged over the next 12-18 months.
Moody's could upgrade Hunan Xiangjiang's issuer rating if (1) China's sovereign rating is upgraded or the Changsha government's capacity to support strengthens, which could arise from a significant strengthening of the city's economic or financial profile or its ability to coordinate timely support (2) the company's characteristics change in a way that strengthens the Changsha government's propensity to provide support, such as through:
- the company becoming more strategically important to its city government, for example, through a significant increase in its share of public-policy projects in the city;
- an increase in government payments and an improvement in the predictability of government payment mechanisms, such that dedicated fiscal budget allocations and transfers from higher-tier governments can consistently cover a large share of its operational and debt-servicing needs.
Conversely, Moody's could downgrade Hunan Xiangjiang's issuer rating if (1) China's sovereign rating is downgraded or the Changsha government's capacity to support weakens, which arise from a significant weakening of the city'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); or (3) the company's characteristics change in a way that weakens the Changsha government's propensity to support, such as through:
- significant changes in its businesses, including substantial expansions into commercial activities at the cost of its provision of public services or substantial losses in its commercial activities;
- a decline in the company's position as the largest and dominant public-service provider in Xiangjiang New Area; and
- rapid increases in its debt and leverage with fewer corresponding government payments.
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.
Hunan Xiangjiang engages in the primary land development and infrastructure construction in the Xiangjiang New Area. Its other businesses mainly include affordable housing projects, commercial property developments, supply-chain financing and financial services provision. Its reported assets totaled RMB95.9 billion as of the end of 2021.
Hunan Xiangjiang is 90% owned by the Changsha State-owned Assets Supervision and Administration Commission and 10% owned by Hunan State-owned Investment & Operation Co., Ltd.
The local market analyst for this rating is Yan Li, +86 (106) 319-6572.
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 .
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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.
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China (Hong Kong S.A.R.)
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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
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
