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Rating Action:

Moody's affirms Shanghai Lingang's Baa1 rating, outlook stable

 The document has been translated in other languages

25 Jun 2021

Hong Kong, June 25, 2021 -- Moody's Investors Service has affirmed the Baa1 issuer rating of Shanghai Lingang Economic Dev. (Grp) Co., Ltd (Shanghai Lingang). At the same time, Moody's has affirmed the Baa1 rating on the USD senior unsecured notes issued by Lingang Wings Inc. and guaranteed by Shanghai Lingang.

The outlook on the ratings remains stable.

"The rating affirmation reflects Shanghai Lingang's sound track record in developing and managing industrial areas in Shanghai; the continuous strong flow of investments into Shanghai, which supports Lingang's property sales and rental income; and the high level of support from the Shanghai municipal government,'' says Kaven Tsang, a Moody's Senior Vice President.

RATINGS RATIONALE

Shanghai Lingang's Baa1 issuer rating incorporates its ba2 Baseline Credit Assessment (BCA) and Moody's assessment of a high likelihood of support from and a high level of dependence on the Shanghai government and ultimately the Government of China (A1 stable) in times of need, which provides a four-notch uplift to its BCA.

The high support assessment reflects Shanghai Lingang's ultimate 100% ownership by the Shanghai government, its strategic importance as a functional state-owned enterprise (SOE) to develop and manage industrial areas in Shanghai, and strong track record of receiving support from the Shanghai government.

The company's ba2 BCA is driven by its dominant position in developing industrial and commercial areas in Shanghai, its stable recurring rental cash flow generated by its industrial and office property portfolio, and strong access to domestic funding.

However, these credit strengths are partially offset by the company's moderate financial profile, due to its large investment plan and fast debt growth.

Shanghai Lingang's revenue in 2020 marginally increased by around 1.8% to RMB7.5 billion, which included property sales revenue of around RMB3.6 billion and recurring rental and service income of around RMB3.5 billion.

Moreover, the company achieved strong contract sales of RMB6.5 billion in 2020, representing an 18% increase over 2019. Such strong growth in contract sales benefited from growing investment flow into Shanghai. The city remains attractive for investments from domestic and overseas companies due to its favorable investment environment that includes supportive central government policies, abundant financing, education, human resources, convenient location and transportation, and well-developed industry clusters.

The outbreak of COVID-19 had a small impact on Shanghai Lingang's rental businesses. The company waived around RMB200 million in rent for its tenants under the government's pandemic burden relief policy, resulting in largely flat rental income in 2020 versus 2019, supported by improved occupancy rate. Shanghai Lingang's rental occupancy rate improved to 87.3% at end of 2020 from 83.4% at end of 2019, with a 29% increase in rental space. These will lead to an increase in rental income in next 2-3 years.

Shanghai Lingang has moderate financial profile due to its fast investment growth, including new construction starts and investments in government-led funds, with its adjusted homebuilding EBIT/interest coverage at around 1.7x and adjusted debt/capitalization at around 58%. Moody's estimates that the company's capital spending and investments will remain high in next 2-3 years. As a result, its adjusted debt/capitalization will continue to rise to around 61% in the next 12-18 months from around 58% at end of 2020. Such a leverage level remains consistent with its BCA.

Moody's also expects the Shanghai government to provide capital and/or asset injections to preserve Lingang's financial profile, if necessary.

Shanghai Lingang's access to liquidity is strong. Although its cash on hand, liquid financial assets and projected operating cash flow are insufficient to cover its planned capital spending and short-term debt maturity in the next 12 months, Moody's expects the company can refinance the short-term debt given its strong access to funding as a key local SOE in Shanghai. As of the end of 2020, Shanghai Lingang had total uncommitted facilities of around RMB255.6 billion, of which around 82% were unused.

In term of governance risks, the Baa1 issuer rating considers the company's oversight from and reporting requirements to the Shanghai government, reflecting its status as a functional SOE.

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

The stable outlook reflects Moody's expectation that Shanghai Lingang's BCA will remain appropriate for its rating over the next 12-18 months, and that the company will continue to receive a high level of support from the Shanghai government and ultimately the Chinese government.

Moody's could upgrade the ratings if Shanghai Lingang's BCA materially improves.

Moody's could raise Shanghai Lingang's BCA if the company's business or financial profile improves. Credit metrics indicative of upward pressure on the BCA include adjusted debt/capitalization falling below 50%-55% on a sustained basis.

Conversely, Moody's could downgrade Shanghai Lingang's ratings if: (1) the likelihood of government support decreases, or (2) the company's BCA weakens significantly.

Shanghai Lingang's BCA could be lowered if its business or financial profile significantly deteriorates. Credit metrics indicative of downward pressure on its BCA include adjusted debt/capitalization staying above 65% on a sustained basis.

The methodologies used in these ratings were Homebuilding And Property Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031, 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 2003, Shanghai Lingang Economic Dev. (Grp) Co., Ltd is 67.36% directly owned by the State-owned Assets Supervision and Administration Commission (SASAC) of Shanghai, with the remaining 32.64% share in the company owned by several state-owned enterprises that are also 100% owned by the Shanghai SASAC as of the end of 2020.

Consequently, Shanghai Lingang is ultimately 100% owned by the Shanghai government. The company is mandated by the same government to develop industrial areas mainly in Shanghai, including primary land development, infrastructure construction, as well as the building of affordable housing and industrial property.

The local market analyst for these ratings is Kai Hu, +86 (212) 057-4012.

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_1263068.

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.

Kaven Tsang
Senior Vice President
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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