Hong Kong, November 11, 2020 -- Moody's Investors Service has assigned a Baa1 senior unsecured rating
to Shandong Hi-speed Group Co., Ltd's (SDHG,
A3 stable) proposed USD bond. The bond will be issued by Shandong
Hi-Speed Group (Hong Kong) Co., Limited, a wholly-owned
subsidiary of SDHG, and supported by a keepwell and liquidity support
deed and a deed of equity interest purchase undertaking between SDHG,
the issuer and the bond trustee.
SDHG plans to use the proceeds primarily to refinance its existing debt
and for general corporate purposes.
The outlook on the rating is stable.
RATINGS RATIONALE
The Baa1 senior unsecured rating of the proposed bond reflects the combination
of SDHG's A3 issuer rating and the structural features of the proposed
bond.
The senior unsecured rating is one-notch below SDHG's issuer
rating, as the keepwell agreement reflects SDHG's willingness
to support the issuer. However, a keepwell agreement differs
from an explicit guarantee in terms of the protection it provides and
the way it is enforced.
Moody's expects that the proposed issuance will not materially increase
SDHG's debt because of the small issuance size relative to SDHG's
existing debt base, and Moody's expectation that the company
will primarily apply the proceeds for refinancing.
SDHG's A3 issuer rating primarily combines its ba1 Baseline Credit Assessment
(BCA) and a four-notch uplift based on Moody's assessment of a
high likelihood of support from and a high level of dependence on the
Shandong provincial government and, ultimately, the Government
of China (A1 stable), when needed.
SDHG's ba1 BCA primarily reflects the company's status as the sole transportation
infrastructure platform in Shandong province and the local government's
proven track record of providing the company financial support.
These strengths are balanced by (1) the commercial nature of the company's
non-transportation businesses, which entail higher risks
and have weaker credit profiles; (2) the company's high financial
leverage and sizable capital spending pipeline, based on the government's
transport infrastructure plans; and (3) the evolving regulatory regime,
which affects the company's toll road business.
The support assessment reflects (1) SDHG's status as the Shandong
government's dominant transportation infrastructure platform for investing
in toll roads, railways and ports; (2) the Shandong's
government 100% ultimate ownership of the company; (3) SDHG's
status as a commercial public-sector entity under an upper-tier
local government and the significant growth in its public-policy
role as its rail segment grows; and (4) the Shandong government's
track record of providing the company financial support .
The stable outlook reflects (1) the stable outlook on China's sovereign
rating; and (2) the consideration that SDHG's BCA is appropriately
positioned at the current level.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Moody's could upgrade the ratings if (1) the likelihood of support
for SDHG increases; and/or (2) SDHG's standalone credit profile
improves significantly.
Moody's would raise SDHG's BCA if the company improves its financial
profile such that its adjusted funds from operations (FFO)/debt,
excluding its financial segment and including government cash payments,
exceeds 7% on a sustained basis.
A downgrade of the ratings could arise if the likelihood of government
support for SDHG decreases, SDHG's standalone credit profile weakens
significantly or its policy functions weaken significantly. Moody's
could lower SDHG'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 and including
government cash payments, falling below 1x over a prolonged period.
The methodologies used in this rating 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.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Shandong Hi-speed Group Co., Ltd (SDHG) is the largest
toll road operator in Shandong province, following its merger with
Qilu Transportation Development Group Co., Ltd (QLTD) in
September 2020. As of 11 November 2020, SDHG and QLTD own
a combined toll road portfolio spanning 6,925 kilometers,
of which 5,837 kilometers are within Shandong province, representing
a market share of around 83.3% of expressways in the province.
SDHG is also the Shandong government's sole platform for investing in
the national railways in the province, in partnership with China
State Railway Group (CSRG). As of the end of September 2020,
the company operated local railways with a total length of 911 km.
In addition, SDHG engages in construction engineering, port
and marine transportation, trading, logistics, financial
and real estate businesses. As of the end of September 2020,
it had a 47.16% shareholding in Weihai City Commercial Bank
(WHCCB) and a 39.4% ownership in Taishan Property Insurance
Company Limited, both of which entities SDHG was the largest shareholder.
As of the end of 2019, SDHG was 70%-owned by the Shandong
State-owned Assets Supervision and Advisory Commission, 20%-owned
by Shandong Guohui Investment Co., Ltd. (Baa2 stable)
and 10% owned by the Shandong Provincial Council for Social Security
Fund, which in turn is ultimately wholly owned by the Shandong Provincial
Government.
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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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
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issued on a support provider, this announcement provides certain
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support provider and in relation to each particular credit rating action
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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
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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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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.
Ada Li
VP - Senior Credit Officer
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
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Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 61 2 9270 8141
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
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China (Hong Kong S.A.R.)
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