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Rating Action:

Moody's affirms SIHC's A2 ratings; outlook remains stable

 The document has been translated in other languages

30 Aug 2021

Hong Kong, August 30, 2021 -- Moody's Investors Service has affirmed the A2 issuer rating of Shenzhen Investment Holdings Co., Ltd. (SIHC).

Moody's has also affirmed the A2 senior unsecured rating of the USD notes issued by SIHC International Capital Ltd and guaranteed by SIHC.

The ratings outlook remains stable.

"The rating affirmation reflects SIHC's large investment portfolio, good quality investments and strong recurring cash flow, as well as our expectation of a high likelihood of government support for SIHC,'' says Gloria Tsuen, a Moody's Vice President and Senior Credit Officer.

RATINGS RATIONALE

SIHC's A2 issuer rating primarily combines (1) its baa2 Baseline Credit Assessment (BCA); and (2) our assessment of a high likelihood of support from and a high level of dependence on the Shenzhen government, and ultimately, the Government of China (A1 stable) when in need, which provides a three-notch uplift to its BCA.

The high likelihood of government support reflects (1) SIHC's 100% ownership by the Shenzhen government; (2) the company's strategic role to the Shenzhen government in undertaking important policy mandates, such as developing high-tech industrial parks in the city, holding important state-owned assets on behalf of the government, and providing public and social welfare services; and (3) track record of frequent capital and state assets injection to SIHC by the Shenzhen government over the past several years.

The support assessment also considers the reputational and contagion risks that may arise if SIHC were to default, given SIHC's status as the first and largest state-owned capital investment company for the Shenzhen government and one of the largest state-owned enterprises (SOEs) in Shenzhen in terms of assets, revenue and profit contribution.

The high dependence level reflects the fact that SIHC and the central government are exposed to common political and economic event risks.

The baa2 BCA is underpinned by SIHC's low market value-based leverage (MVL), as measured by net debt to estimated portfolio value, and good quality underlying investments. The BCA, however, is constrained by its high business and geographic concentrations, moderate credit contagion risk from its major investees and execution risk from new investments.

Moody's estimates that SIHC had an adjusted portfolio value of around RMB285 billion as of the end of 2020, with over 57% comprising listed equities.

SIHC maintained a solid financial profile at the holding company level. Its adjusted MVL was around 14.3% as of the end of 2020. SIHC also has strong recurring cash flow at the holding company level, with a recurring funds flow from operations (FFO)/interest coverage of 5.3x in 2020. The recurring cash flow includes dividends and interest income from its investees, sales proceeds and rental income from its industrial park business.

Moody's forecasts SIHC's MVL will increase to around 16%-17% and its adjusted FFO/interest coverage ratio will decline to around 4.3x-4.5x over the next 12 to 18 months. This is because the company has a large investment plan in industrial parks and properties, which will be debt-funded. Nevertheless, such metrics remain appropriate for its baa2 BCA.

SIHC's major investments include (1) Ping An Insurance (Group) Co of China, Ltd. (which holds Ping An Life Insurance Company of China, Ltd. [A2 insurance financial strength rating (IFSR), stable], Ping An P&C Insurance Company of China, Ltd. [A2 IFSR, stable] and Ping An Bank Co., Ltd [Baa2 long-term deposit rating, positive]), (2) Guotai Junan Securities Co., Ltd. (Baa1, stable) and (3) Shenzhen International Holdings Limited (Baa2, stable). These companies have good credit quality and contribute stable dividend income to SIHC.

Apart from investment activities, SIHC also conducts industrial park development and rental business at the holding company level. SIHC has a strong niche market position in these businesses and also receives strong operational support from the Shenzhen government.

SIHC's cash on hand of around RMB10.2 billion as of the end of March 2021 and expected FFO of around RMB6.6 billion for the next 12 months are insufficient to support its short-term debt of RMB16.6 billion and RMB14 billion-RMB15 billion of planned investments for the next 12 months. But this is counterbalanced by SIHC's strong access to bank credit and the capital markets, because of its status as a high-profile SOE owned by the Shenzhen government. SIHC's holding of listed financial assets with an estimated value RMB94 billion as of the end of 2020 could also provide alternate liquidity in times of need.

SIHC's issuer rating also takes into account the following environmental, social and governance (ESG) considerations.

SIHC has a low exposure to environmental risk factors as it has a diversified investment portfolio, and its major investees have no distinct exposure to environmental risk factors.

SIHC also has a low exposure to social risks related to demographic and societal trends. SIHC is located in Shenzhen city, which is one of the well-developed economies in China and attracts population inflow. SIHC can benefit from such demographic trends as it owns a few public and utility type of businesses.

In terms of governance, SIHC is wholly owned and supervised by the Shenzhen State-Owned Assets Supervision and Administration Commission (SASAC) and its management team is appointed directly by the government. Its investments need to align with the government's policy. As a non-listed entity, SIHC has moderate information transparency to the public. Given that SIHC publishes financial information in the domestic bond market and that most of its large investments are listed companies, these characteristics enhance its information transparency.

The rating outlook is stable, reflecting Moody's expectations that over the next 12-18 months: (1) SIHC's credit metrics will remain at the levels that are appropriate for its BCA; and (2) SIHC's importance to the Shenzhen government and ultimately Chinese government and the government's ability to provide support will remain intact.

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

SIHC's ratings will likely be upgraded if (1) the Shenzhen government's and ultimately the Chinese government's ability to support SIHC strengthens as reflected in the upgrade of the sovereign rating, and (2) SIHC's BCA improves.

SIHC's BCA could be upgraded if SIHC's investment portfolio improves materially, including an enhanced credit quality of key investees and a satisfactory investment track record.

Credit metrics that will lead to an upgrade of its BCA include an adjusted MVL below 10% and FFO/interest coverage higher than 4.0x-4.5x on a sustained basis.

SIHC's ratings will be downgraded if the company's BCA is lowered without any change of the support assessment. Such a situation would result from aggressive debt-funded investments, or a substantial weakening in the credit quality of its major investees.

Credit metrics indicative of downward pressure on its BCA include an adjusted MVL exceeding 20%-25% and FFO/interest coverage lower than 2.0-2.5x.

A downgrade of SIHC's rating, without a lowering of its BCA, could also be triggered by a change in Moody's support assessment; for example, if SIHC expands aggressively in profit-driven commercial activities that have low strategic importance to the government; or that the Shenzhen government's and Chinese government's ability to provide support weakens, which would be illustrated by a downgrade of China's sovereign rating.

The methodologies used in these ratings were Investment Holding Companies and Conglomerates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125855, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Established in 2004, Shenzhen Investment Holdings Co., Ltd. is a wholly state-owned investment holding company under the Shenzhen government. SIHC's investment portfolio had an estimated adjusted portfolio value of around RMB285 billion as of the end of 2020. Its investments include companies in the financial services, transportation and logistics, industrial parks, manufacturing, education, culture and human resources services.

The local market analyst for these ratings is Sue Su, +86 (106) 319-6505.

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 entities are participating and the rated entities or their agent(s) generally provide 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.

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.

Gloria Tsuen, CFA
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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