Hong Kong, December 09, 2021 -- Moody's Investors Service has affirmed Sinochem Hong Kong (Group)
Company Limited's (Sinochem HK) A3 issuer rating.
At the same time, Moody's has also affirmed the following ratings:
(1) The provisional (P)A3 -- local currency rating of the backed
senior unsecured medium-term note (MTN) program of Sinochem Offshore
Capital Company Limited and guaranteed by Sinochem HK; and the A3
backed senior unsecured debt ratings on the notes issued under the MTN
program;
(2) The provisional (P)Baa1 local and foreign currency rating of the backed
subordinate medium-term note (MTN) program of Sinochem Offshore
Capital Company Limited and guaranteed by Sinochem HK; and the Baa1
backed subordinated debt rating on the perpetual bonds issued under the
MTN program;
(3) The A3 backed senior unsecured rating on the notes issued by Sinochem
Overseas Capital Company Limited and guaranteed by Sinochem HK.
Moody's has also assigned a provisional (P)A3 -- foreign currency
senior unsecured rating to the MTN program of Sinochem Offshore Capital
Company Limited and guaranteed by Sinochem HK.
The outlook on these ratings remains stable.
"The affirmation of the ratings reflects Moody's expectation
that the standalone financial profile of Sinochem HK will be largely stable
and its credit profile will remain closely linked with that of its ultimate
parent, Sinochem Holdings Corporation Ltd.,"
says Chenyi Lu, a Moody's Vice President and Senior Credit
Officer, and also the Lead Analyst for Sinochem HK.
RATINGS RATIONALE
Sinochem HK's A3 issuer rating considers its standalone credit profile
and a four-notch uplift reflecting Moody's expectation of a likelihood
of support from the Government of China (A1 stable) through the company's
ultimate parent, Sinochem Holdings Corporation Ltd.,
when needed.
On 16 September 2021, Sinochem Group and China National Chemical
Corporation Limited (ChemChina, Baa2 stable) completed a share transfer
to Sinochem Holdings, which is fully owned by the State-owned
Assets Supervision and Administration Commission (SASAC) of the State
Council of China. Consequently, Sinochem HK has become ultimately
100%-owned by and managed as an integral part of Sinochem
Holdings.
The four-notch uplift reflects Sinochem HK's status as the overseas
treasury center of Sinochem Holdings. Sinochem HK plays an important
role in raising offshore funding for the group and holds Sinochem Holdings'
equity interests in its listed real estate subsidiary, China Jinmao
Holdings Group Limited (Baa3 stable). Moody's views that Sinochem
HK's credit profile is closely linked with that of Sinochem Holdings,
and that Sinochem HK will continue to receive strong support from its
ultimate parent.
Sinochem Holdings has a strong capacity to provide support, reflecting
its solid standalone credit profile and Moody's expectation of very high
support from the Chinese government if needed. The company is one
of the largest comprehensive chemical enterprises globally in terms of
revenue and is the only central state-owned enterprise (SOE) in
China's chemical industry, with operations spanning over 150 countries.
It has a diversified business portfolio, including life science,
material science, basic chemical industry, environmental science,
rubber & tires, machinery equipment, urban operation,
and industrial finance. Pro forma the 2020 annual results of Sinochem
Group and ChemChina, Moody's estimates that Sinochem Holdings
had total assets of around RMB1.5 trillion, revenue of about
RMB1 trillion, and operating profits of about RMB40 billion.
Moody's expectation of very high support from the Chinese government
to Sinochem Holdings takes into consideration the company's 100%
ownership by the central SASAC; its unique strategic positioning
and policy functions in agriculture, chemical and energy industries
among central SOEs; and the financial and policy support from the
Chinese government.
Sinochem Holdings also has a solid standalone credit profile, reflecting
its very large business scale, strong market positions and diversified
business portfolio, and Moody's expectation of management
focus to deleverage in the next 2-3 years. These strengths
are offset partially by its still weak credit metrics due to Sinochem
Holdings consolidating ChemChina's leveraged balance sheet.
Moody's expects Sinochem Holdings' leverage to improve in
the next 2~3 years through earnings expansion, business integration
and restructuring, the execution of subsidiaries' IPOs,
and measured capital and acquisition spending.
Sinochem HK's standalone credit profile reflects the company's competitive
position in its property businesses through China Jinmao, and the
low counterparty risk of the intercompany loans from Sinochem HK to its
parent. As of the end of 2020, Sinochem HK's net intercompany
lending to its parent amounted to HKD11 billion, accounting for
around 8% of its total reported debt.
At the same time, Sinochem HK's standalone credit profile is constrained
by its moderate debt leverage, reflecting the financing needs of
its property businesses and the offshore borrowings on behalf of its parent.
Moody's estimates that Sinochem HK's leverage, as measured by debt/EBITDA
and after adjustments for the net lending to the company's parent,
rose to 6.1x in 2020 from 5.2x in 2019, driven by
higher debt from the property segment. Moody's forecasts the company's
leverage will decline to 5.0x-5.5x over the next
12-18 months, supported by likely faster revenue recognition
and moderating land acquisitions from China Jinmao. Such leverage
level will be consistent with Sinochem HK's standalone credit profile.
Sinochem HK's issuer rating also considers the following environmental,
social and governance (ESG) risks.
Sinochem HK's property businesses have limited exposure to environmental
and social risks. In terms of governance considerations,
Sinochem HK's ownership is concentrated in its ultimate parent company
Sinochem Holdings, which fully owned the company as of the end of
November 2021. However, this risk is mitigated by the close
supervision by the central SASAC through its parent parent, Sinochem
Holdings. In addition, Sinochem HK has adequate information
disclosure as an active bond issuer, and its key listed subsidiary,
China Jinmao, also enhances its information transparency at the
subsidiary level.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook reflects Moody's expectation that Sinochem HK's importance
to Sinochem Holdings will remain intact and that its debt leverage will
remain stable over the next 12-18 months.
Moody's could upgrade Sinochem HK's rating if Sinochem HK and Sinochem
Holdings improve their financial profiles on a sustained basis while managing
growth prudently, without any material change in Moody's assessment
of support from Sinochem Holdings to Sinochem HK.
Credit metrics indicative of an upgrade of Sinochem HK's rating include
adjusted debt/EBITDA dropping below 5.5-6.0x for
Sinochem Holdings and below 4.0x for Sinochem HK, both on
a sustained basis.
Moody's could downgrade Sinochem HK's rating if Sinochem Holdings' and
Sinochem HK's business or financial profile materially deteriorate,
without any material changes in Moody's assessment of support from Sinochem
Holdings to Sinochem HK.
Credit metrics indicative of a downgrade of Sinochem HK's rating include
adjusted debt/EBITDA rising above 7.5-8.0x for Sinochem
Holdings and above 6.0x for Sinochem HK, both on a sustained
basis, without any prospect of deleveraging.
In addition, Sinochem HK's rating could be downgraded if Moody's
expects a weakening in parental support, including a material decline
in the government's ownership in Sinochem Holdings or the group's ownership
in Sinochem HK, or a reduction in the strategic importance of Sinochem
HK to Sinochem Holdings.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Sinochem Hong Kong (Group) Company Limited (Sinochem HK) is the overseas
treasury center and investment vehicle of Sinochem Holdings, a state-owned
enterprise (SOE) wholly owned by the Chinese government. It is
responsible for financing in overseas markets for its parent's businesses
and holds investment assets on behalf of the parent group.
As of the end of November 2021, Sinochem HK was ultimately 100%
owned by Sinochem Holdings Corporation Ltd. According to its audited
financial statements, Sinochem HK reported total revenue of HKD67.8
billion and total assets of HKD498.5 billion in 2020.
The local market analyst for these ratings is Jin Wu, +86 (212)
057-4021.
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
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and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
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am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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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.
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
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JOURNALISTS: 852 3758 1350
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