Hong Kong, September 15, 2020 -- Moody's Investors Service has assigned a Baa1 rating to the proposed senior
unsecured notes to be issued by Talent Yield (Euro) Limited. The
notes will be unconditionally and irrecoverably guaranteed by Beijing
Enterprises Holdings Limited (BEHL, Baa1 stable).
The outlook is stable.
The proceeds from the senior unsecured notes will be used to refinance
existing indebtedness.
RATINGS RATIONALE
"The senior unsecured notes — if they are issued as planned —
will not have a material impact on BEHL's overall credit profile because
the scale of the issuance will be manageable for BEHL," says Boris
Kan, a Moody's Vice President and Senior Credit Officer.
BEHL's Baa1 issuer rating incorporates: (1) its standalone
credit strength; and (2) a four-notch uplift, based
on Moody's expectation of extraordinary support from the Beijing
municipal government and the Government of China (A1 stable) through BEHL's
ultimate parent, Beijing Enterprises Group Company Limited (BE Group),
in times of need.
BEHL's standalone credit profile is supported by the company's diversified
business portfolio and the stable cash flows from its monopoly and leading
positions in the less-cyclical gas and water treatment businesses
that back the group's rapid expansion, given the supportive government
policies for the two sectors and rising environmental awareness in China.
On the other hand, BEHL's standalone credit profile is constrained
by (1) the company's high leverage driven by acquisitions and investments,
(2) its heightened business risks arising from its overseas investments,
and (3) the uncertainty regarding the company's stake in PetroChina
Beijing Pipeline Co., Ltd as part of the Chinese government's
plan to reform the nation's gas pipeline network.
The support assessment reflects BEHL's (1) dominant role in the
local natural gas and water utility sectors, which are commercially
viable but are linked to the public policy goals of the Beijing municipal
government and the central government; and (2) majority ownership
by BE Group, which, in turn, is 100% owned by
the Beijing municipal government.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The stable outlook primarily reflects Moody's expectation that BEHL will
maintain its overall credit profile and will keep further expansions and
acquisitions at a manageable scale over the next one to two years.
Moody's could upgrade BHEL's issuer rating if the company's
standalone credit profile improves significantly. Indicators of
improvement in BHEL's standalone credit profile include (1) successfully
deleveraging by the company over time, or (2) favorable changes
in the regulatory environment for its core gas and water segments.
The financial metrics for an upgrade of BHEL's standalone credit
profile include (1) adjusted funds from operations (FFO)/interest coverage
above 5x; (2) retained cash flow (RCF)/debt above 15%;
or (3) adjusted debt/book capitalization below 45% for a sustained
basis. All financial metrics are based on the pro-rata consolidation
of Beijing Enterprises Water Group Limited, which was 41.1%
owned by BEHL as of December 2019.
On the other hand, Moody's could downgrade BEHL's ratings
if (1) the likelihood of support from the BE Group or the Beijing municipal
government decreases, or (2) BEHL's standalone credit profile
weakens significantly.
Downward pressure on BEHL's standalone credit profile could arise if (1)
the company pursues further large debt-funded expansions or investments;
(2) there are significant adverse changes to the regulatory regime that
hurt the company's profitability and cash flow; or (3) dividend income
from its 40% equity stake in PetroChina JV declines significantly
following the reform of the nation's gas pipeline network.
Financial indicators that would point to a downgrade of BEHL's standalone
credit profile include (1) adjusted FFO interest coverage below 2.5x,
(2) RCF/debt below 8%, or (3) adjusted debt/book capitalization
in excess of 60% over a prolonged period.
The rating also considers the following environmental, social and
governance (ESG) factors.
BEHL's environmental risk is low. Natural gas distribution
is the company's biggest earnings contributor and plays an important
role in the government's air pollution control plan. Specifically,
the Chinese government targets to increase natural gas consumption to
15% of its primary energy mix by 2030 from 5.9% in
2015.
BEHL faces moderate social risks in terms of worker health and safety
in relation to its construction and operation of city gas projects and
waste water treatment facilities. This risks are mitigated by the
long track record of the company and the experience of the management.
BEHL's governance risk is moderate. While BEHL is owned and
controlled by the Beijing Enterprises Group Company Limited (not rated)
and ultimately the Beijing municipal government, its financial policy
is characterized by policy-driven expansions, including overseas
investments with higher volatilities than its core domestic city gas business.
The principal methodology used in this rating was Investment Holding Companies
and Conglomerates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125855.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Beijing Enterprises Holdings Limited (BEHL) is 62.1% controlled
by Beijing Enterprises Group Company Limited (BE Group), which in
turn is 100% owned by the Beijing municipal government and supervised
by the Beijing State-owned Assets Supervision and Administration
Commission (SASAC).
BEHL is an investment holding company. The company operates in
four business segments across China: (1) piped gas operations,
(2) brewery operations, (3) equity investments in sewage and water
treatment services, and (4) solid waste treatment operations.
In the first half of 2020, the company reported HKD5.3 billion
in profit before tax (excluding corporate expenses), of which 66%
was from gas-related businesses, 6% from brewery operations,
17% from sewage and water treatment services, and 10%
from solid waste treatment operations.
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.
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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.
The Global Scale Credit Rating on this Credit Rating Announcement was
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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.
Boris Kan
VP - Senior Credit Officer
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
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Hong Kong
China (Hong Kong S.A.R.)
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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
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077