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Rating Action:

Moody's assigns A1 to Zhejiang Port's proposed USD bonds; outlook stable

 The document has been translated in other languages

09 Mar 2021

Hong Kong, March 09, 2021 -- Moody's Investors Service has assigned an A1 senior unsecured rating to the proposed guaranteed USD bonds to be issued by Zhejiang Seaport International Co., Limited, a wholly-owned subsidiary of Zhejiang Provincial Seaport Investment and Operation Group Co. Ltd. (Zhejiang Port, A1 stable) and guaranteed by Zhejiang Port.

The rating outlook is stable.

Zhejiang Port plans to use the net proceeds mainly to refinance existing debt and the remainder for international business expansion.

RATINGS RATIONALE

"The A1 senior unsecured rating on the bonds reflects the irrevocable and unconditional guarantee from Zhejiang Port," says Ralph Ng, a Moody's Vice President and Senior Analyst.

Obligations under the guaranteed bonds will rank pari passu with Zhejiang Port's all other senior unsecured obligations.

The proposed bond issuance will not materially increase Zhejiang Port's leverage, because the company will primarily use the proceeds to refinance existing debt.

Zhejiang Port's A1 issuer rating is underpinned by the company's baseline credit assessment (BCA) of baa1 and a three-notch rating uplift, based on Moody's assessment of the high likelihood of support from, and the high level of dependence on, the Zhejiang provincial government and ultimately the Government of China (A1 stable), in times of need.

Zhejiang Port's baa1 BCA reflects its strong market position in the Yangtze River Delta port sector as well as the company's diversified cargo mix.

At the same time, the company's credit strengths are counterbalanced by its non-port operations, natural competition with other Chinese ports, mainly Shanghai, its overseas expansion plans and the presence of external guarantees.

Zhejiang Port's wholly-owned subsidiary, Ningbo Zhoushan Port Group Co., Ltd., has for 11 consecutive years been the world's largest port in terms of tonnage as of 2019. It is also the world's third-largest container port.

Moody's estimates Zhejiang Port's adjusted funds from operations (FFO) interest coverage ratio will be about 5x and adjusted FFO/debt will be 12% over the next three years, after accounting for the company's annual capital spending of RMB8.4 billion, which includes its potential investments overseas, and its external guarantee of RMB6.4 billion as debts.

The rating also considers the following environmental, social and governance (ESG) factors.

Zhejiang Port operates in port sector which faces moderate environmental risk. Zhejiang Port's traditional port operation and its natural deep sea conditions do not require dredging to accommodate large vessels. Projects will require emission standard report and environmental study which aligns with the Environmental Protection Law.

Zhejiang Port's exposure to social risk — mainly stemming from health and safety regulations, responsible production requirements, and demographic and societal trends -- is moderate and is mitigated by the its track record of no major accidents.

In terms of governance factors, Zhejiang Port is subject to oversight by the Zhejiang provincial government. Overseas investments, changes in personnel, external guarantees and other key corporate changes require approvals from its shareholders, which indicate that Zhejiang Port's financial policy and operating performance are heavily monitored by the provincial government.

The stable outlook reflects the stable outlook on China's sovereign rating, Moody's view that Zhejiang Port's BCA is appropriately positioned at the current level, and the operator's strong liquidity and access to funding.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

An upgrade is unlikely because Zhejiang Port's rating is already on par with the sovereign rating, and it is unlikely that the company will be rated higher than the sovereign.

Moody's could upgrade Zhejiang Port's BCA if the company's business or financial profile improves. Credit metrics indicative of a BCA upgrade include FFO/debt surpassing 17% and adjusted FFO interest coverage surpassing 5.0x on a sustained basis.

Conversely, Moody's could downgrade the rating if the likelihood of government support for Zhejiang Port decreases and its standalone credit profile weakens meaningfully.

Given the high likelihood of support, Zhejiang Port's rating is resilient to a weakening in its BCA. Accordingly, a downgrade in the BCA to baa2 may not necessarily lead to a rating downgrade, assuming the likelihood of government support remains unchanged.

Moody's could downgrade Zhejiang Port's BCA, without any significant changes in the support assessment, if (1) the profitability of the company's port operations deteriorates materially; (2) the company undertakes further significant debt-funded acquisitions; (3) it invests in massive non-core commercial businesses that reduce its strategic importance; or (4) it faces adverse policy and regulatory changes in China, which could negatively affect its business.

Credit metrics indicative of a BCA downgrade include adjusted FFO/debt below 10% or adjusted FFO interest coverage below 3.0x, both on a sustained basis.

The methodologies used in this rating were Privately Managed Port Companies published in September 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1040210, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Established in 2015, Zhejiang Port is the sole provincially-owned port platform that consolidates all port assets within Zhejiang province. Its largest asset is Ningbo-Zhoushan Port, which has for 11 consecutive years been the world's largest port in terms of tonnage as of 2019.

The Zhejiang State-owned Assets Supervision and Administration Commission (SASAC) is the controlling shareholder and has a 27.6% stake in the company, while Ningbo SASAC owns 60.8% and other regional SASACs own the remaining stake. City-level SASACs' ownership of Zhejiang Port is based on the port assets these SASACs had injected into the company.

REGUALTORY 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.

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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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.

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_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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
Vice President - Senior 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

Yian Ning Loh
Associate Managing Director
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

No Related Data.
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