Hong Kong, November 15, 2021 -- Moody's Investors Service has assigned a senior unsecured rating of A2
to the proposed notes to be drawn down under the USD3 billion guaranteed
medium-term note program issued by Rongshi International Finance
Limited and guaranteed by State Development & Investment Corp.,
Ltd. (SDIC, A2 stable).
The proceeds will be used for overseas project construction and general
corporate purposes.
The rating outlook is stable.
RATINGS RATIONALE
"The A2 rating of the proposed notes reflects the unconditional
and irrevocable guarantee from SDIC and the fact that the notes will rank
pari passu with SDIC's senior unsecured obligations,"
says Chenyi Lu, a Moody's Vice President and Senior Credit Officer.
"The proposed guaranteed notes will not materially increase SDIC's overall
debt level; instead, they will improve its liquidity and debt
maturity profile," adds Chenyi, also Moody's International
Lead Analyst for SDIC.
SDIC's A2 issuer rating is primarily driven by (1) the company's standalone
credit profile, as illustrated by its baa3 Baseline Credit Assessment
(BCA); and (2) Moody's assessment of a very high likelihood of support
from, and SDIC's very high level of dependence on, the Government
of China (A1 stable), resulting in a four-notch uplift from
the company's BCA.
The very high likelihood of government support reflects (1) SDIC's 100%
ownership by the Chinese government; (2) the company's status as
an investment company carrying national policy and its close links with
the central government; (3) the high importance of the company's
core investments; (4) the company's role in implementing state-owned
enterprise (SOE) reforms; and (5) the large portfolio of investment
funds managed by the company for central and local government agencies.
The very high dependence level reflects the fact that SDIC and the central
government are exposed to common political and economic event risks.
SDIC's baa3 BCA is underpinned by the company's diversified business portfolio
and the strong market positions of its key business segments in power
generation, ports, financial services, pharmaceutical
and natural resource sectors. In addition, its good track
record of active asset recycling and strong access to the domestic funding
market support the BCA.
However, the BCA is constrained by SDIC's modest financial profile,
large investment and capital spending plan, and execution risks
related to its developments in new areas.
Moody's expects the company's leverage, as measured by net debt/market
value-based portfolio value (MVL), to remain stable at around
50%-55% over the next 12-18 months,
in line with SDIC's average over the past four years.
Moody's also expects SDIC to receive cash dividends and interest income
of around RMB5 billion annually. As a result, funds from
operations (FFO) interest coverage will stay at around 1.2x over
the next 12-18 months.
These key credit metrics are weak for its BCA; however, SDIC's
A2 rating is supported by its high strategic importance to the Chinese
government and its strong access to credit and capital markets due to
its central SOE status.
The A2 issuer rating of SDIC also considers the following environmental,
social and governance (ESG) factors.
First, SDIC has limited exposure to environmental risk factors because
(1) SDIC has a diversified investment portfolio across around 10 sectors;
and (2) although the thermal power business of SDIC Power faces carbon
transition, such risks are mitigated by SDIC's growing hydro and
wind power generation capacity and the disposal of a number of small and
low-efficiency thermal power plants over the past two to three
years.
SDIC's exposure to social risk is limited given the diversity of its portfolio
of investments. Its stake in China National Pharmaceutical Group
Corporation (Sinopharm, not rated) could expose the company to social
risk but this investment is small and represents around only 10%
of interest and dividend income and 17% of portfolio value in 2020.
Sinopharm's Covid-19 vaccine also brings social opportunities in
terms of relations with key customers and stakeholders, including
patients, physicians, hospitals and regulators.
In terms of governance factors, Moody's considers that SDIC is wholly
owned by the Chinese central government, which supervises the company's
key business decisions and operations. As a non-listed entity,
SDIC has moderate information transparency. However, this
risk is partly tempered by the fact that it publishes financial information
for its domestic bond issuances. Moreover, most of its key
investments are listed companies with good information disclosure.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The stable outlook reflects Moody's expectation that over the next 12-18
months (1) SDIC's credit profile will remain stable, and (2) the
company's importance to the economy and the Chinese government's ability
to provide support will remain intact.
Moody's could upgrade SDIC's ratings if: (1) the Chinese government's
ability to provide support strengthens, which would be illustrated
by an upgrade of China's sovereign rating, and (2) SDIC's BCA improves.
Credit metrics that would indicate upward pressure on the BCA include
holding company-level market value leverage falling below 30%-35%
and (FFO + interest)/interest coverage rising above 2.5x-3.0x.
Moody's could downgrade SDIC's ratings if: (1) the Chinese government's
ability to provide support weakens, which would be illustrated by
a downgrade of China's sovereign rating, or (2) SDIC's strategic
importance to the Chinese government declines significantly.
Moody's could also lower SDIC's rating if its BCA weakens.
Moody's could lower SDIC's BCA if the company embarks on aggressive debt-funded
investments, or if the credit quality of its major investees weakens
significantly, such that (1) the holding company-level market
value leverage rises above 60%, and (2) (FFO + interest)/interest
coverage falls below 1.0x for a prolonged period.
The methodologies used in this rating were Investment Holding Companies
and Conglomerates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125855,
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.
State Development & Investment Corp., Ltd. (SDIC)
was established in 1995 by the State Council as part of the Chinese government's
move toward reforming state investment mechanisms. Over the past
two decades, it has developed a large investment portfolio,
valued at around RMB193 billion as of the end of 2020.
SDIC has a diversified portfolio covering a broad range of sectors including
power, transportation, pharmacy, mining, financial
services and emerging strategic industries.
The local market analyst for this rating is Yuting Liu, +86
(106) 319-6530.
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.
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 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
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.
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
