Hong Kong, July 30, 2020 -- Moody's Investors Service has affirmed the ratings of 28 state-owned
enterprises (SOEs) and their rated subsidiaries under various regional
and local governments (RLGs) in China (A1 stable), following the
publication of its Local Government Financing Vehicles (LGFVs) in China
Methodology on 29 July 2020.
Moody's has also revised the outlooks to stable from negative for
three issuers: Guangzhou City Construction Investment Group Co Ltd
(A3 stable), Guangxi Communications Investment Group Corporation
Ltd (Baa2 stable) and Chengdu High-Tech Investment Group Co.
Ltd. (Baa3 stable). The outlooks on the other 25 issuers
remain stable.
At the same time, Moody's has withdrawn the Baseline Credit Assessments
(BCAs) previously assigned to these 28 companies, as the primary
methodology has changed to LGFVs in China from Government-Related
Issuers Methodology (GRIs).
The rating affirmations for all 28 issuers (1) reflect Moody's classification
under its new methodology of these SOEs as LGFVs; (2) are based on
the capacity of their respective owner RLGs to provide support and the
LGFVs' specific characteristics that may lower the owner RLGs'
propensity to provide support under the new methodology; and (3)
reflect Moody's assessment that these LGFVs' ratings are still
appropriately positioned at their current levels.
The change in outlooks to stable for the three LGFVs reflects Moody's
expectation that their RLG owners' capacity to provide support as
well as the LGFVs' business profiles will remain largely unchanged
over the next 12-18 months, while the previous negative outlooks
reflected the pressure on their respective BCAs under the GRI methodology.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL428710
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL428710
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
Local Market Analyst
The change in the primary methodology reflects the publication of Moody's
new LGFVs in China methodology, consistent with Moody's view
that (1) RLG support is the dominant credit consideration for an LGFV,
and (2) LGFV-specific characteristics may also affect the RLG's
propensity to support the LGFV.
LGFVs are entities that are directly or indirectly fully owned and effectively
controlled by RLGs and that engage primarily in financing, investing
in and operating public infrastructure and social welfare projects on
behalf of their owner RLGs.
Because the primary purpose of LGFVs is to serve public policy objectives
and provide public goods or services to the general public for free or
at subsidized rates, they are typically closely integrated with
their owner RLGs, and the RLG typically provides the majority of
the LGFV's cash flow.
The analytical framework in this rating methodology comprises two components:
1) The "Governmental Capacity to Support" (GCS) component,
which considers aspects that could influence an owner RLG's ability
to provide support to an LGFV in a timely manner; and
2) The "LGFV Characteristics Affecting Support" component,
primarily based on (1) an LGFV's business profile; (2) its
integration, control and oversight by the RLG; (3) the risk
of being called to bail out other entities; (4) any exceptional governmental
willingness to support characteristics, and other analytical considerations.
The analysis may result in downward or, more rarely, upward
adjustments in whole notch increments to the Governmental Capacity to
Support score.
The ratings also consider the following environmental, social and
governance (ESG) factors.
Activities undertaken by LGFVs may carry varying levels of environmental
risks depending on the mandate of individual LGFVs.
LGFVs generally have high social risks since they implement public policy
initiatives by building, owning and operating public infrastructure.
Demographic changes, public awareness and social priorities shape
their development targets and ultimately affect their respective owner
RLGs' propensity to provide support.
Governance considerations are also material to the ratings, as the
issuer is subject to oversight and reporting requirements to its owner
RLG, reflecting its public policy role and status as a government
owned entity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlooks for the 28 LGFVs reflect (1) the stable outlook on
the Chinese government ; (2) Moody's expectation that their
respective owner RLGs' GCS will remain stable; and (3) Moody's
expectation that the LGFVs' business profiles and integration with,
and control and oversight by their respective owner RLGs will remain largely
unchanged over the next 12-18 months.
Moody's has recalibrated the rating tolerance levels of these rated LGFVs
to reflect the changed in methodology and corresponding credit drivers.
The ratings could be upgraded if (1) China's sovereign rating is
upgraded or the LGFVs' respective owner RLGs' GCS strengthens,
which could be a result of a material strengthening in the owner RLGs'
economic or financial profile, or their ability to coordinate timely
support; or (2) these LGFVs' specific characteristics change
in a way that enhances the RLGs' propensity to support them.
The ratings could be downgraded if (1) China's sovereign rating
is downgraded or the LGFVs' respective owner RLGs' GCS weakens,
which could be the result of a material weakening in the owner RLGs'
economic or financial profile, or their ability to coordinate timely
support; (2) these LGFVs' specific characteristics change in
a way that lowers the RLGs' propensity to support them; or
(3) there are changes in Chinese government policies that prohibit RLGs
from providing financial support to LGFVs.
The principal methodology used in these ratings was Local Government Financing
Vehicles in China Methodology published in July 2020 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216254.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are all solicited credit
ratings. Additionally, the List of Affected Credit Ratings
includes additional disclosures that vary with regard to some of the ratings.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL428710
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
Rating Solicitation
Issuer Participation
Participation: Access to Management
Participation: Access to Internal Documents
Disclosure to Rated Entity
Endorsement
Lead Analyst
Releasing Office
Person Approving the Credit Rating
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.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
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.
Ada Li
VP - Senior Credit Officer
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
Gary Lau
MD - Corporate Finance
Corporate Finance Group
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
