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
