New York, June 20, 2022 -- Moody's Investors Service ("Moody's") has completed a periodic review of the ratings -and other ratings that are associated with the same analytical units for the rated entity(entities) listed below.
The review was conducted through a portfolio review discussion held on 9 June 2022 in which Moody's reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. A possible outcome from periodic reviews is a referral of a rating to a rating committee.
This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement.
Key Rating Considerations
The principal methodology used for these rated entities was Local Government Financing Vehicles in China Methodology published in April 2022. Please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Governmental Capacity to Support: The Governmental Capacity to Support score that acts as the foundation to our analysis. Our approach to arriving at a governmental support score starts with China's sovereign rating as the Central government makes important policy decisions affecting budgets and resources allocation of RLGs. The Governmental Capacity to Support score we establish for an LGFV is then based on the extent of separation between the sovereign and the controlling regional and local government (RLG), as well as the RLG's local economic, demographic, and fiscal fundamentals. This approach is consistent with our observations that the first layer of support for failing LGFVs is their controlling RLG, while also recognizing the close linkages among different layers of governments in China. In cases where an LGFV is experiencing credit stress, support would typically be channeled through the direct RLG owner or controller.
LGFV Characteristics Affecting Support: In this component, we consider LGFV-specific characteristics that may affect the RLG's propensity to support the LGFV, which may result in downward notching from the Governmental Capacity to Support Score and, in some rare cases, upward notching. Beyond an
RLG's capacity to support, the LGFV's own characteristics are considered regarding the RLG's propensity to support and of the likelihood that it will extend timely support when needed. This component includes four notching factors:
Business Profile: An LGFV's business profile is relevant for how the local government owner will prioritize its resources to support that LGFV among all of the RLG's state-owned enterprises. The relative importance of the types of an LGFV's public activities or an LGFV's departure from the public mandate, for example toward more commercially oriented activities, can affect the sufficiency or timeliness of the RLG's support.
Integration, Control and Oversight: Given the close linkage between LGFVs and their owner RLGs, an LGFV's financial profile largely reflects the direction, control, and oversight of the RLG, in addition to the LGFV's own management and public policy mandate. Due in part to expectations of consistent support from RLGs, LGFVs have been able to operate and maintain access to credit markets with significantly higher leverage than most private sector entities. However, a very weak financial profile, especially where it results from lax debt management or a loss in access to funding or where there are issues with the sufficiency or timeliness of payments from the controlling RLG, often signals a higher likelihood that the LGFV will experience financial distress and require extraordinary support. It may also signal relatively lower propensity of the RLG to provide timely support to the entity. Similarly, indirect ownership of an LGFV by an RLG controller could diminish the integration, control and oversight exerted.
External Bailout Risk: Actions by the RLG can create credit problems for the LGFV. An RLG may use an LGFV as a vehicle to support other failing entities, including LGFVs, SOEs or private companies. For example, the RLG may direct an LGFV to engage in M&A transactions, with a healthier LGFV assuming the obligations of a weaker one, or it may direct a transfer of assets or other actions that support a weaker entity. These actions may also signal a lack of support from the RLG for the supporting LGFV. In particular, when the RLG does not adequately compensate the LGFV for the use of the latter's resources, the RLG is demonstrating a tendency to compromise the financial profile of the LGFV to the benefit of other entities.
Exceptional Governmental Willingness to Support Characteristics: In rare cases, an LGFV may benefit from substantially higher support expectations than other LGFVs, owing to the importance of its activities and lack of substitute for these LGFVs to the controlling RLG, but also its importance to higher-tier local governments or the central government. As a result, the LGFV is likely to be prioritized when higher tiers of government allocate resources for extraordinary support.
Other Factors: Other factors may include, but are not limited to, financial controls and the quality of financial reporting; track record of support; corporate legal structure; the quality and experience of management; assessments of corporate governance as well as environmental and social considerations. Regulatory, litigation, liquidity, technology, and reputational risk as well as changes to consumer and business spending patterns, competitor strategies and macroeconomic trends are also considered.
This announcement applies only to Rated Entities with EU rated, UK rated, EU endorsed and UK endorsed ratings. Rated Entities, with Non EU rated, non UK rated, non EU endorsed and non UK endorsed ratings may be referenced herein to the extent necessary, if they are part of the same analytical unit.
Please see the Issuer page on https://ratings.moodys.com for each of the ratings covered, most updated credit rating action, rating history, and Credit Rating action Press Release including the rating rationale and factors that could lead to a rating upgrade or downgrade.
List of Issuers/Rated Entities
• Beijing Infrastructure Investment Co., Ltd.
• Beijing Public Housing Center
• Changchun Urban Dev. Invs. Hldgs (Grp) Co Ltd
• Changde Economic Construction Investment Grp
• Chengdu High-Tech Investment Group Co. Ltd.
• ChengDu JingKai GuoTou Inv Grp Co.,Ltd.
• Chengdu Tianfu New Area Invs. Grp. Co., Ltd
• Chongqing Development Investment Co. Ltd
• Ganzhou Development Invst Hldg Grp Co Ltd
• Guangxi Communications Investment Grp Co.,Ltd
• Guangzhou City Constr. Invs. Grp. Co., Ltd
• Guangzhou Metro Group Co., Ltd.
• Hanjiang Guotou Group Co., Ltd.
• Henan Railway Const. & Inv. Group Co Ltd
• Henan Water Conservancy Investment Grp Co Ltd
• Hubei Science & Technology Investment Group
• Hubei United Development Invst Grp Co Ltd
• Hunan Xiangjiang New Area Dev. Grp. Co., Ltd
• Huzhou City Investment Development Grp
• Jiangxi Provincial Water Conservancy Invt Grp
• Jiangxi Railway & Aviation Invt Grp Co Ltd
• Jiaxing City Invs and Dev Group Co., Ltd.
• Jinan City Construction Group Limited Company
• Kunming Rail Transit Group Co., Ltd.
• Lanzhou Construction Invt (Hldg) Grp Co Ltd
• Lhasa City Construction Invt Mgmt Co., Ltd.
• Linyi City Construction Investment Grp Co Ltd
• Nanjing Pukou Economic Development Co., Ltd.
• Ningbo Haishu Dev & Constn Invt Grp Co., Ltd
• Ningbo Yincheng Group Co., Ltd.
• Qingdao Haifa St-ownCapital Invst and Op
• Shandong Finance Investment Group Co., Ltd
• Shuifa Group Co., Ltd.
• Taiyuan Longcheng Development Invt Grp Co Ltd
• Tianjin Binhai New Area Cons & Invt Group Co.
• Tianjin Rail Transit Group Co., Ltd.
• Weifang Urban Construction and Dev Invt Grp
• Weihai Wendeng District Bluesea Invt & Dvpt
• Wuhan Metro Group Co., Ltd.
• Wuhan Urban Construction Group Co., Ltd.
• Yangzhou Economic and Tech Dev Zone Dev Corp
• Yinchuan Tonglian Cap. Inv. Opn. Co., Ltd.
• Yiwu State-owned Capital Operation Co., Ltd.
• Yuyao Shuncai Investment Hldg. Co., Ltd.
• Zhaoqing Guolian Investment Holding Co., Ltd.
• Zhengzhou Metro Group Co., Ltd.
• Zhoushan City Investment Group Corp Ltd.
• Zhuzhou City Construction Dev. Group Co Ltd.
• Zhongyuan Yuzi Investment Hldg Grp Co., Ltd.
This publication does not announce a credit rating action.
For any credit ratings referenced in this publication, please see the issuer/deal page on https://ratings.moodys.com
for the most updated credit rating action information and rating history.
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