Hong Kong, November 09, 2020 -- Moody's Investors Service has affirmed the ratings of six toll road companies
and their rated subsidiaries in China.
At the same time, Moody's has changed the rating outlooks to stable
from negative on:
- Anhui Transportation Holding Group Co., Ltd.'s
Baa1 issuer rating
- Anhui Transportation Holding Group (H.K.) Ltd's
Baa1 BACKED senior unsecured rating
- Guangzhou Communications Investment Group's Baa2 issuer rating
- Shandong Hi-speed Group Co., Ltd's A3 issuer
rating
- Yuexiu Transport Infrastructure Limited's Baa2 issuer rating
- Famous Kind International Limited's (P)Baa2 BACKED Senior
Unsecured MTN program rating
- Shenzhen Expressway Company Limited's Baa2 issuer rating and
senior unsecured rating
- Shenzhen International Holdings Limited's Baa2 issuer rating
and senior unsecured rating
A list of all affected ratings and assessments is provided at the end
of this press release.
RATINGS RATIONALE
"The change in outlook to stable for the six toll road operators reflects
our expectation that their operating and financial performance will continue
to recover to a level consistent with their ratings, in view of
a continued recovery of traffic volume after the resumption of toll collection
in May," says Ivy Poon, a Moody's Vice President and Senior
Analyst.
"We expect that the toll revenue of rated issuers will continue to improve
as the economy recovers, despite some weakening this year due to
the coronavirus outbreak," adds Poon.
According to statistics from China's Ministry of Transport, road
traffic volume showed a continued recovery momentum since the relaxation
of traffic restrictions in March. All toll road operators have
shown a recovery in revenue performance, following the resumption
of tolls at all toll roads and bridges in May, ending the toll-free
policy period that had been in place since February. The daily
average toll road traffic volume recorded a 5.4% growth
during the 6 May to 26 October period, compared with the same period
last year.
The ongoing recovery in traffic volume and the resumption of tolls have
largely relieved concerns over the uncertainties on the sector's performance
and recovery, which was a key consideration of the companies' negative
outlooks back in March. Accordingly, Moody's expects
that the financial metrics of most toll road issuers will be within their
current rating tolerance levels in the next 12-18 months,
after the one-year dip in 2020.
At the same time, Moody's expects most rated toll road operators'
leverage will remain high, given that their sizeable investment
plans, which were in place before the coronavirus outbreak,
are likely to be maintained or further increased as the government continues
to strengthen the transportation network to support balanced regional
development and urbanization and to facilitate the post-pandemic
economic recovery.
Moody's expects the rated toll road operators' financial risk
will be partly mitigated by recurring government fiscal support.
These companies already enjoy strong market positions, lower funding
costs and ample funding access because of their status as state-owned
enterprises, which support their current credit profiles.
In addition, sustained low interest rates and a looser credit environment
will provide further financial flexibility and broaden infrastructure
companies' funding channels.
Specifically for Shenzhen International, while the heightened leverage
will weaken the company's standalone credit profile over the next
three years, this will be partly mitigated by Moody's expectation
of higher support for the company from Shenzhen Investment Holdings Co.,
Ltd. (Shenzhen Investment, A2 stable), the Shenzhen
municipal government, and ultimately the Government of China (A1
stable) in times of need. Such expectation is underpinned by the
higher strategic importance of Shenzhen International as a key municipal-owned
infrastructure platform tasked with strengthening the transportation and
logistics networks in Shenzhen with the nearby regions. As a result,
Moody's has increased the uplift incorporated into the company's
Baa2 rating to two notches from one notch.
Overall, Moody's expects the rated toll road companies will
maintain sound liquidity with proven funding access, and their refinancing
risks will be manageable at current rating levels.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Anhui Transportation Holding Group Co., Ltd.
The stable outlook reflects (1) the stable outlook on China's sovereign
rating, and (2) the consideration that Anhui Transportation's BCA
is appropriately positioned at the current level.
The stable outlook also reflects Moody's expectation that Anhui
Transportation will (1) maintain a stable financial profile, which
takes into consideration the grants and subsidies from the Anhui provincial
government; (2) maintain its ownership of strategic transportation
assets and dominant position in the local toll road sector; and (3)
maintain its access to funding, supported by its policy role.
Moody's could upgrade the ratings if (1) the likelihood of government
support for Anhui Transportation increases; (2) the company's
BCA improves significantly; or (3) the company's policy functions
materially increase.
Moody's would raise the company's BCA if it improves its financial
profile by increasing its earnings and reducing debt. Credit metrics
that could lift its BCA include adjusted funds from operations (FFO)/debt,
after including adjustments for government payments, exceeding 7%
on a sustained basis.
However, Moody's could downgrade the ratings if (1) the likelihood
of government support for Anhui Transportation decreases; (2) the
company's BCA weakens meaningfully; or (3) the company's policy
functions materially weakens.
Downgrade pressure could also emerge if Anhui Transportation (1) takes
on even more aggressive debt-funded capital spending; (2)
develops a substantially weaker credit profile; or (3) is affected
by adverse changes in the regulatory or economic environment.
Credit metrics that could pressure the company's BCA include adjusted
FFO/debt, after including adjustments for government payments,
remaining below 3% on a sustained basis.
Guangzhou Communications Investment Group
The stable outlook reflects (1) the stable outlook on China's sovereign
rating; and (2) the consideration that Guangzhou Communication's
BCA is appropriately positioned at the current level.
The stable outlook also reflects Moody's expectation that the company
will (1) maintain a stable financial profile, which takes into consideration
the grants and subsidies from the Guangzhou government; (2) maintain
its ownership of strategic transportation assets and dominant position
in the local toll road sector; (3) not engage in non-transportation-related
operations or aggressive debt-funded M&A; and (4) maintain
its access to funding, supported by its policy role.
Moody's could upgrade the ratings if (1) the likelihood of government
support for Guangzhou Communications increases; (2) the company's
standalone credit profile improves significantly; or (3) the company's
policy functions materially increase.
Financial metrics that would indicate an improvement in the company's
BCA include FFO interest coverage exceeding 3.0x on a sustained
basis, after taking into consideration recurring government grants
and subsidies.
Moody's could downgrade the ratings if (1) the likelihood of government
support for the company decreases; (2) the company's standalone
credit profile weakens meaningfully; or (3) the company's policy
functions materially weakens.
Downward pressure may emerge if (1) the company is unable to obtain sufficient
external funding to refinance its debt and support its expansion;
(2) the company fails to secure ongoing support from the Guangzhou government;
(3) a material change in the economic environment in Guangzhou weakens
toll road traffic volumes; or (4) there are adverse changes in the
regulatory environment.
Financial metrics that would lead to a downgrade of the company's
BCA include FFO interest coverage falling below 1.0x on a sustained
basis, after taking into consideration recurring government grants
and subsidies.
Shandong Hi-speed Group Co., Ltd
The stable outlook reflects (1) the stable outlook on China's sovereign
rating; and (2) the consideration that Shandong Hi-speed's
BCA is appropriately positioned at the current level.
Moody's could upgrade the ratings if (1) the likelihood of support
for the company increases; and/or (2) the company's standalone
credit profile improves significantly.
Moody's would raise Shandong Hi-speed's BCA if the company
improves its financial profile such that its adjusted FFO/debt,
excluding its financial segment but including government cash payments,
exceeds 7% on a sustained basis.
A downgrade of the ratings could arise if the likelihood of government
support for the company decreases, the company's standalone credit
profile weakens significantly or its policy functions weaken significantly.
Moody's could lower the company's BCA if the company takes on more
aggressive debt-funded capital spending or is unable to control
the risks associated with its non-railway and non-toll road
businesses.
Credit metrics that could pressure the company's BCA include (1) its adjusted
FFO/debt, excluding its financial segment and including government
cash payments, remaining below 3%, primarily driven
by its non-financial business segments; or (2) its adjusted
FFO interest coverage, excluding its financial segment but including
government cash payments, falling below 1x over a prolonged period.
Yuexiu Transport Infrastructure Limited
The stable outlook reflects Moody's expectation that the company's
toll road portfolio will continue to generate steady cash flow in the
next 12-18 months, assuming no material debt-funded
acquisitions.
Upward rating pressure is limited in the near term, given the weaker
credit profile of Yuexiu Group, and the expected opacity around
the regulatory framework over the next two years.
Nonetheless, upward rating pressure could emerge over time if (1)
FFO/debt rises above 20% on a sustained basis; (2) Yuexiu
Transport establishes track record of positive free cash flow generation,
and (3) the company does not make material debt-funded acquisitions.
Moody's could downgrade the company's rating if (1) it engages
in material debt-funded expansion projects or acquisitions;
(2) there are adverse material changes in the macroeconomic environment
or government policies, which impair the company's traffic volumes
or toll revenue; or (3) there is evidence of excessive cash leakage
from Yuexiu Transport to its parent company or the group's subsidiaries,
or there are signs of material weakening in its parent group's credit
profile.
Financial indicators that could lead to a downgrade include FFO/debt below
12.5% on a prolonged basis.
Shenzhen Expressway Company Limited
The stable outlook reflects Moody's expectations that Shenzhen Expressway
will (1) maintain its stable financial profile over the next 12-18
months, and (2) not engage in capital spending and acquisitions
that would materially weaken its business and financial profiles.
Moody's could upgrade the rating if the company undertakes meaningful
deleveraging, which could be driven by equity issuance and a moderation
in acquisitions or investments, particularly in non-related
businesses.
Key financial metrics that could lead to an upgrade include (1) FFO/debt
exceeding 20%; and (2) cash interest coverage exceeding 5.0x,
both on a sustained basis.
Downgrade pressure could emerge if (1) the company's FFO/debt drops below
15% and cash interest coverage remains below 2.0x on a sustained
basis; and (2) contributions from non-toll-road businesses
exceed 35%-40% of total assets on a sustained basis.
Changes of the rating of its parent, Shenzhen International Holdings
Limited, could also lead to a review of the company's rating.
Shenzhen International Holdings Limited
The stable outlook reflects Moody's expectation of (1) Shenzhen
International will maintain a stable credit profile underpinned by increasing
strategic importance to the Shenzhen municipal government, and (2)
the stable outlook on the China sovereign rating over the next 12-18
months.
The company's issuer rating could be upgraded if (1) support from
the government further strengthens or (2) the company's standalone
credit profile significantly improves.
Financial metrics that would indicate an improvement in the company's
standalone credit profile include (1) FFO/interest cover of more than
3.0x and/or FFO/debt of over 11% on a sustained basis.
Shenzhen International's issuer rating could be downgraded if (1)
support from the government will weaken or (2) the company's standalone
credit profile deteriorates.
A deterioration in the company's standalone credit profile could
occur as a result of (1) a material change in the macroeconomic environment
in Shenzhen; (2) adverse policy changes by the government that negatively
impact the company's business or financial risk profiles; or (3)
heavy debt-funded acquisitions and investments, or a shift
away from its's core infrastructure activities.
Financial metrics that could indicate a weakening in its standalone credit
profile include FFO/debt falling below 6% and FFO/ interest cover
dropping below 1.5x, without a significant cash buffer.
The principal methodologies used in rating Anhui Transportation Holding
Group Co., Ltd., Anhui Transportation Holding
Group (H.K.) Ltd, Guangzhou Communications Investment
Group, and Shandong Hi-speed Group Co., Ltd
were Publicly Managed Toll Roads and Parking Facilities published in March
2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091602,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
The principal methodology used in rating Shenzhen International Holdings
Limited, Shenzhen Expressway Company Limited, Yuexiu Transport
Infrastructure Limited, and Famous Kind International Limited was
Privately Managed Toll Roads published in October 2017 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1096736.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
LIST OF AFFECTED RATINGS
..Issuer: Anhui Transportation Holding Group Co.,
Ltd. (Lead Analyst: Ralph Ng)
....Long-term Issuer Rating (Foreign
and Local Currency), Affirmed Baa1
....Outlook, Changed To Stable From
Negative
..Issuer: Anhui Transportation Holding Group (H.K.)
Ltd (Lead Analyst: Ralph Ng)
....BACKED Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed Baa1
....Outlook, Changed To Stable From
Negative
..Issuer: Guangzhou Communications Investment Group
(Lead Analyst: Ralph Ng)
....Long-term Issuer Rating (Foreign
and Local Currency), Affirmed Baa2
....Outlook, Changed To Stable From
Negative
..Issuer: Shandong Hi-speed Group Co.,
Ltd (Lead Analyst: Ada Li)
....Long-term Issuer Rating (Foreign
Currency), Affirmed A3
....Outlook, Changed To Stable From
Negative
..Issuer: Yuexiu Transport Infrastructure Limited
(Lead Analyst: Ivy Poon)
....Long-term Issuer Rating (Foreign
and Local Currency), Affirmed Baa2
....Outlook, Changed To Stable From
Negative
..Issuer: Famous Kind International Limited (Lead
Analyst: Ivy Poon)
....BACKED Senior Unsecured Medium-Term
Note Program (Local Currency), Affirmed (P)Baa2
....Outlook, Changed To Stable From
Negative
..Issuer: Shenzhen Expressway Company Limited (Lead
Analyst: Ivy Poon)
....Long-term Issuer Rating (Foreign
Currency), Affirmed Baa2
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed Baa2
....Outlook, Changed To Stable From
Negative
..Issuer: Shenzhen International Holdings Limited
(Lead Analyst: Ivy Poon)
....Long-term Issuer Rating (Foreign
Currency), Affirmed Baa2
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed Baa2
....Outlook, Changed To Stable From
Negative
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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rating assigned, and in relation to a definitive rating that may
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