Hong Kong, December 19, 2019 -- Moody's Investors Service ("Moody's") has affirmed
Zheneng Jinjiang Environment Holding Co Ltd's (ZJE) Ba3 corporate
family rating (CFR).
At the same time, Moody's has affirmed the B1 senior unsecured
rating on ZJE's USD bond.
The ratings outlook has been revised to stable from negative.
RATINGS RATIONALE
"The revision of the ratings outlook to stable reflects our expectation
that ZJE's liquidity position and credit profile will stabilize
following the acquisition of 29.79% shares of ZJE by Zhejiang
Provincial Energy Group in August 2019, making the latter the single
largest shareholder of ZJE," says Ralph Ng, a Moody's
Assistant Vice President and Analyst.
"We expect that, as a minority owned subsidiary of Zhejiang
Provincial Energy Group, ZJE will benefit going forward from greater
access to credit markets and lower financing costs," adds
Ng.
Moody's points out that Zhejiang Provincial Energy Group Co.
Ltd (ZEG, A2 stable) — a state-owned company —
has a much stronger credit profile when compared with ZJE.
ZJE's Ba3 CFR reflects (1) its solid market position and geographically
diversified waste-to-energy (WTE) assets in China,
(2) the high visibility of cash flow from its domestic business model,
and (3) the currently favorable policies of the WTE industry.
However, ZJE's ratings are constrained by (1) the company's
small scale in the fragmented WTE industry when compared to other rated
generation companies, (2) increased business and regulatory risks
from overseas expansion, (3) its weak financial metrics due to capital
spending, and (4) an evolving regulatory regime.
For 2019-2021, Moody's expects that ZJE's average annual
capital spending will register around RMB2 billion, with adjusted
funds from operations (FFO) to debt of around 10%-11%,
and FFO interest coverage of about 3.0x.
The stable ratings outlook takes into account Moody's expectation
that over the next 12-18 months, the company's credit profile
will remain appropriately positioned at the current CFR of Ba3.
The ratings also consider the following environmental, social and
governance factors.
ZJE's business profile is associated with elevated environmental
risks, given that the WTE business is exposed to tightening discharge
and emission standards in China.
ZJE faces moderate social risks, because as a listed company,
it has established high standard health and safety regulations.
ZJE's governance risks include its aggressive financial policy,
characterized by its high financial leverage and sizable capital spending
pipeline. However, the ownership and ongoing monitoring by
ZEG will largely mitigate such risks.
Moody's could upgrade ZJE's ratings over time, if the
company improves its financial profile, or its linkages with ZEG
strengthens, such that its strategic importance to ZEG is higher
and the likelihood of support from the energy group to ZJE increases.
Financial metrics for a ratings upgrade include retained cash flow (RCF)
to debt exceeding 12%, and adjusted FFO interest cover exceeding
4.0x; both on a sustained basis.
ZJE's ratings will be under downward pressure if (1) there are changes
in China's regulatory environment that adversely affect the company's
profitability, (2) ZJE's liquidity position does not stabilize
as expected or if it pursues further debt-funded expansions or
overseas projects that weaken its financial and business profile.
Financial metrics for a ratings downgrade include RCF to debt remaining
below 8%, and FFO interest cover below 2.25x over
a prolonged period.
The principal methodology used in these ratings was Unregulated Utilities
and Unregulated Power Companies published in May 2017. Please see
the Rating Methodologies page on www.moodys.com for a copy
of this methodology.
Zheneng Jinjiang Environment Holding Co Ltd is a Singapore-listed
waste-to-energy (WTE) operator in China. As at the
end of November of 2019, Zhejiang Provincial Energy Group,
via its subsidiaries, is ZJE's single largest shareholder,
owning 29.57% of the company.
ZJE operates along the whole value chain in the WTE sector, from
planning and construction to the operation and management of WTE facilities.
As at 30 September 2019, ZJE had 21 operating WTE facilities and
five resource recycling projects, with a total waste treatment capacity
of 30,540 tons/day and electricity generation capacity of 632MW,
covering 13 provinces in China.
The local market analyst for these ratings is Qingqing Guo, +86
(21) 2057-4093.
REGULATORY DISCLOSURES
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.
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 entity is participating and the rated entity or its agent(s)
generally provides 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.
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.
Ralph Ng
Asst Vice President - Analyst
Project & Infrastructure Finance
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
Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
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
