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.
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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
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
