Hong Kong, April 27, 2021 -- Moody's Investors Service has assigned a Baa1 rating to the proposed senior
unsecured guaranteed bonds to be issued by Talent Yield International
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 debts and for general corporate purposes.
RATINGS RATIONALE
"The Baa1 senior unsecured rating on the guaranteed bonds reflects the
irrevocable and unconditional guarantee from BEHL," says Boris Kan,
a Moody's Vice President and Senior Credit Officer.
Obligations under the guaranteed bonds will rank pari passu with BEHL's
all other senior unsecured obligations.
The proposed senior unsecured guaranteed bonds — 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.
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 future dividend policies of PetroChina
Beijing Pipeline Co., Ltd (Beijing Pipeline) after Kunlun
Energy Company Limited (A2 stable) transferred its 60% equity interest
in Beijing Pipeline to China Oil & Gas Pipeline Network Corporation
(PipeChina, not rated).
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 is 100% owned by the Beijing municipal
government.
The rating also considers the following environmental, social and
governance (ESG) factors.
BEHL's city gas distribution segment 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 about 8% in 2019.
In addition, BEHL's operations are also exposed to worker
health and safety risks in relation to its construction and operation
of city gas projects and waste water treatment facilities. These
risks are mitigated by the long track record of the company and the experience
of the management.
While BEHL's financial policy is characterized by policy-driven
expansions, including overseas investments with higher volatilities
than its core domestic city gas business, this concern is mitigated
by the tight supervision by the BE Group and ultimately the Beijing municipal
government, as well as the company's status as a listed company
in the Hong Kong Stock Exchange.
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) successful
deleveraging by the company over time, or (2) favorable regulatory
changes 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 2020.
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 Beijing Pipeline declines significantly
over a prolonged period.
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 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 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 2020, the company reported HKD8.0 billion in profit before
tax (excluding corporate expenses), of which 71% was from
gas-related businesses, 4% from brewery operations,
22% from sewage and water treatment services, and 3%
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.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
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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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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_1263068.
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
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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
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
