Hong Kong, October 21, 2020 -- Moody's Investors Service has assigned an A3 rating to the proposed
senior unsecured USD notes to be drawn down under the $10 billion
medium-term note (MTN) program issued by Sinochem Offshore Capital
Company Limited (SOCC) and guaranteed by Sinochem Hong Kong (Group) Company
Limited (Sinochem HK, A3 stable). Moody's has also
assigned a Baa1 rating to the proposed subordinated perpetual securities
to be drawn down under the MTN program.
Sinochem HK plans to use the majority of the net proceeds to refinance
its maturing debt and the remainder for general corporate purposes.
RATINGS RATIONALE
The A3 senior unsecured rating reflects the fact that the notes will rank
pari passu with all other senior unsecured obligations of Sinochem HK.
The Baa1 rating on the subordinated perpetual securities is one notch
lower than Sinochem HK's senior unsecured obligations to reflect the subordinated
status of the securities.
Moody's considers the subordinated perpetual securities as 100%
debt-like due to the high step-up cost of 300 basis points
after the first call date, creating a strong incentive for the company
to prepay the securities.
In addition, Moody's believes there is a low likelihood of Sinochem
HK deferring the coupon payments, given the dividend suspension
clause and the company's strong access to funding.
However, the rating on the subordinated perpetual securities could
be further lowered if Moody's assesses that the company is likely to defer
a large number of coupon payments in advance of default.
Sinochem HK's A3 issuer rating reflects its standalone credit profile
of ba1, and a four-notch uplift reflecting Moody's expectation
of a high likelihood of support in times of need from the Government of
China (A1 stable) through the parent company, Sinochem Group,
which is in turn wholly owned by the Government of China.
The four-notch uplift reflects Sinochem HK's status as the overseas
treasury center of Sinochem Group, which in turn is wholly owned
by the central government. Sinochem HK plays an important role
in facilitating offshore funding for the group and also holds Sinochem
Group's equity interests in the listed real estate company China Jinmao
Holdings Group Limited (China Jinmao, Baa3 stable). Moody's
considers the credit profiles of Sinochem Group and Sinochem HK as closely
linked.
Sinochem HK's ba1 standalone credit profile reflects the company's strong
competitive position in its property businesses, the low counterparty
credit risk of the intercompany loans, which accounted for 14.6%
of total debt, and the expected improvement in its credit metrics
in the next two years.
At the same time, Sinochem HK's rating is constrained by its weak,
although improving, debt leverage.
Sinochem HK's issuer rating also takes into account the following environmental,
social and governance (ESG) considerations.
Sinochem HK's property businesses have limited exposure to environmental
and social risks. In terms of governance, as a key subsidiary
of a state-owned enterprise (SOE), Sinochem HK is under the
close supervision of the central government. In addition,
Sinochem HK has adequate information disclosure as an active bond issuer,
and its key listed subsidiary, China Jinmao, also enhances
information transparency at the subsidiary level.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook reflects Moody's expectation that Sinochem HK's importance
to Sinochem Group will remain intact and its debt leverage will improve
over the next 12-18 months.
Sinochem HK's rating could be upgraded over the medium term if there is
no change in Moody's assessment of support from Sinochem Group to Sinochem
HK, and if Sinochem HK and Sinochem Group show an improvement in
profitability and debt leverage on a sustained basis while managing growth
prudently.
Credit metrics indicative of an improvement in the company's standalone
credit strength include adjusted debt/EBITDA dropping below 4.0x
for Sinochem Group and Sinochem HK, both on a sustained basis.
Sinochem HK's rating could be downgraded if there is a material deterioration
in Sinochem Group's and Sinochem HK's business or financial profiles,
without any material changes in the assessment of support from Sinochem
Group to Sinochem HK.
Credit metrics indicative of downward pressure on Sinochem HK's rating
include adjusted debt/EBITDA of both Sinochem Group and Sinochem HK remaining
above 6.0x on a sustained basis, without any prospect of
deleveraging.
In addition, Sinochem HK's rating could be downgraded if Moody's
expects a weakening in support, including a material decline in
the government's ownership in Sinochem Group or the group's ownership
in Sinochem HK, or a reduction in the strategic importance of Sinochem
HK to Sinochem Group.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Sinochem Hong Kong (Group) Company Limited (Sinochem HK) is the overseas
treasury center and investment vehicle of Sinochem Group, an state-owned
enterprise (SOE) wholly owned by the Chinese Government. It is
responsible for the financing in the overseas market for its parent's
businesses and holds investment asset on behalf of the parent group.
In 2019, Sinochem HK was ultimately 98% owned by Sinochem
Group. According to its audited financial statements, it
reported total revenue of HKD49.6 billion and total assets of HKD403.4
billion.
The local market analyst for these ratings is Jin Wu, +86 (21)
2057-4021.
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
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to a program for which the ratings are derived exclusively from existing
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provides certain regulatory disclosures in relation to the provisional
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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.
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issued by one of Moody's affiliates outside the EU and is endorsed by
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60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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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.
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China (Hong Kong S.A.R.)
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Gary Lau
MD - Corporate Finance
Corporate Finance Group
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Client Service: 852 3551 3077
Releasing Office:
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