Hong Kong, June 11, 2019 -- Moody's Investors Service has affirmed the Baa3 issuer rating of Zhuji
State-owned Assets Management Co., Ltd. (Zhuji
SAMC), as well as the Baa3 senior unsecured rating on the bonds
issued by Zhuji Development Limited and guaranteed by Zhuji SAMC.
At the same time, Moody's has changed the outlook on these
ratings to negative from stable.
RATINGS RATIONALE
"The negative outlook reflects the material year-on-year
increase in Zhuji SAMC's adjusted net debt of around RMB9.4
billion in 2018 from 2017, resulting from a large increase in its
other receivables, namely amounts due from other government related
entities, as well as the lower than expected cash payments from
the Zhuji government," says Chenyi Lu, a Moody's Vice President
and Senior Credit Officer.
"The ability of Zhuji SAMC to curb its debt growth in the next one
to two years remains uncertain, given the expected large funding
requirements for its ongoing investments and for infrastructure project
development," adds Lu.
In 2018, Zhuji SAMC received around RMB5.2 billion in cash
payments from the Zhuji government, in the form of buybacks of infrastructure
projects, government fund allocations, operating subsidies
and capital injections. This is lower than Moody's previous
expectation and much lower than the RMB9.1 billion cash payments
Zhuji SAMC received from the government in 2017.
While Moody's expects cash payments from the Zhuji government will
likely increase in 2019, as indicated by the government's
strong land sales in the first five months of 2019, these larger
cash payments may be insufficient to reduce the company's high leverage,
in turn pressuring its baseline credit assessment (BCA).
Moody's is also concerned about the transparency and quality of
the large amount of receivables due from other government related entities,
including lower tier townships.
Zhuji SAMC's weakened financial profile is partly mitigated by Moody's
expectation of strong government support, with the majority of the
debt associated with its public welfare projects and commercial public
projects supported by recurring government cash payments.
Zhuji SAMC's Baa3 rating primarily combines: (1) its ba3 BCA;
and (2) Moody's assessment of the strong likelihood of support that the
company would receive from and high level of dependence on the Government
of China (A1 stable) in times of need, which results in a rating
that is three notches above Zhuji SAMC's BCA.
Moody's assessment of a strong level of support reflects Zhuji's close
linkage with and its ultimate 100% ownership by the Zhuji government,
While the Zhuji government is a county-level government in Zhejiang
Province, it enjoys a similar level of authority as prefecture-level
governments in terms of social and economic development, and administrative
and fiscal management.
As such, Moody's believes the central government would support efforts
by the Zhuji government and the Zhejiang government to prevent Zhuji from
defaulting and thereby avoiding disruption to the domestic financial market.
Such support can take various forms, including government subsidies,
capital or asset injections, as well as loans from policy and state-owned
banks. The high dependence level reflects the fact that Zhuji SAMC
and the central government are exposed to common political and economic
event risks.
Zhuji SAMC's BCA is driven by its diversified business profile as it consolidates
the majority of Zhuji city's state-owned operating assets,
its monopoly position in various public services, and its strong
access to domestic funding.
On the other hand, Zhuji SAMC's BCA is constrained by its high net
debt growth due to its planned sizable investments in infrastructure development
and affordable housing construction over the next 2-3 years,
of around RMB5-6 billion per year.
The negative outlook reflects Zhuji SAMC's elevated leverage and
the uncertainty around its ability to curb its debt growth.
Zhuji SAMC's issuer rating is unlikely to be upgraded in the near
term, given the negative outlook.
The rating outlook could return to stable if Zhuji SAMC narrows the funding
gap between its investments needs and cash payments from the government,
while materially reducing its receivables from other government related
entities.
Moody's could downgrade Zhuji SAMC rating if: (1) the likelihood
of support for Zhuji SAMC from the government decreases and/or (2) Zhuji
SAMC 's standalone credit profile weakens meaningfully.
Moody's could lower Zhuji SAMC's BCA if Zhuji SAMC's debt and leverage
continue to grow rapidly, without a reduction in its receivables
from other government related entities.
Credit metrics indicative of a potential downgrade of the BCA include:
(1) debt growth exceeding growth in fund from operations (FFO),
after adjusting for cash payments from the government; (2) adjusted
debt/cap exceeds 60%-65% on a sustained basis.
The methodologies used in these ratings were Business and Consumer Service
Industry published in October 2016, and Government-Related
Issuers published in June 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
Zhuji State-owned Assets Management Co., Ltd.
is 100%-owned and directly supervised by the State-Owned
Assets Supervision and Administration Commission of the Zhuji City Government
(Zhuji SASAC).
As the largest platform of the Zhuji SASAC, the company consolidates
around 75% of the Zhuji government's major state-owned operational
assets, including urban infrastructure construction, affordable
housing development, water services, and public transportation.
At the end of 2018, Zhuji reported revenue of RMB4.5 billion
and total assets of RMB111.6 billion.
The local market analyst for these ratings is Yuting Liu, +86
(106) 319-6530.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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
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generally provide Moody's with information for the purposes of its
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the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
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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.
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
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
