Hong Kong, October 18, 2021 -- Moody's Investors Service has assigned a Baa2 senior unsecured rating
to the proposed bonds to be issued by Hunan Xiangjiang New Area Development
Group Co., Ltd (Hunan Xiangjiang, Baa2 stable).
The rating outlook is stable.
Hunan Xiangjiang plans to use the net proceeds to refinance its existing
debt and replenish its working capital.
RATINGS RATIONALE
Hunan Xiangjiang's Baa2 issuer rating is based on the Changsha government's
capacity to support (GCS) score of a3, and Moody's assessment of
how the company's characteristics affect the Changsha government's propensity
to support, reflecting in a two-notch downward adjustment.
Changsha city's GCS score reflects Changsha's status as the capital
of Hunan, a moderate-risk province in the central region
of China (A1 stable); its sound fiscal profile, with low reliance
on net transfers, low direct debt burden and moderate state-owned
enterprise (SOE) liabilities; and its large economy, which
indicates greater diversification and capacity to absorb shocks.
Hunan Xiangjiang's Baa2 issuer rating also reflects the Changsha
government's propensity to support Hunan Xiangjiang, which is based
on the Changsha government's effective control in Hunan Xiangjiang;
Hunan Xiangjiang's dominant role in developing the Xiangjiang New
Area; and the company's track record of receiving government
cash payments.
The two-notch downward adjustment reflects Hunan Xiangjiang's
debt growth in relation to its investment in the Xiangjiang New Area,
and its moderate exposure to shadow banking and commercial activities.
Moody's expects Hunan Xiangjiang's annual capital spending
to remain within the RMB9 billion-RMB10 billion range in 2021-22.
While the Changsha government provides cash payments like capital injections
to partly support the company's capital spending in public-policy
projects, a part of these payments relies on land sales and can
be less predictable.
Moody's recognizes the company's track record of sound financial
management, whereby it has maintained its debt financing within
an acceptable level and has contained its use of high-cost financing,
such as borrowing from nonstandard financing channels, at a relatively
low level.
The ratings also consider the following environmental, social and
governance (ESG) factors.
Governance considerations are material to the rating as Hunan Xiangjiang
is owned and controlled by the Changsha government and has to meet several
reporting requirements, reflecting its public-policy role
and status as a government-owned entity.
Hunan Xiangjiang bears high social risks as it is mandated to build public
infrastructure and primary land development in the Xiangjiang New Area.
Demographic changes, public awareness and social priorities shape
Xiangjiang New Area's development targets and ultimately affect
the Changsha government's propensity to support the company.
Environmental risks are low for Hunan Xiangjiang.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The stable outlook on Hunan Xiangjiang's rating reflects the stable outlook
on China's A1 sovereign rating; Moody's expectation that
Changsha's GCS score will remain stable; and Moody's view that
the company's business profile and integration with the Changsha
government, and the government's control and oversight of
the company, will remain largely unchanged over the next 12-18
months.
The rating could be upgraded if:
(1) China's sovereign rating is upgraded or the Changsha government's
GCS strengthens, which could be the result of a significant strengthening
of the city's economic or financial profile, or its ability
to coordinate timely support; or
(2) The company's characteristics change in a way that strengthens the
Changsha government's propensity to provide support, such as through:
- The company becoming more strategically important to its city
government, for example, through a significant increase in
the share of public-policy projects in the city;
- An increase in government payments and an improvement in the
predictability of government payment mechanisms, whereby dedicated
fiscal budget allocations and transfers from higher-tier governments
can consistently cover a large share of its operational and debt-servicing
needs.
On the other hand, Moody's could downgrade the ratings if:
(1) China's sovereign rating is downgraded or the Changsha government's
GCS weakens, which could be the result of a significant weakening
in the city's economic or financial profile, or its ability
to coordinate timely support; or
(2) There are changes in the Chinese government's policies that
prohibit regional and local governments (RLGs) from providing financial
support to local government financing vehicles (LGFVs); or
(3) The company's characteristics change in a way that weakens the Changsha
government's propensity to support, such as through:
- Significant changes in its businesses, including substantial
expansions into commercial activities at the cost of public services or
substantial losses in commercial activities,
- A decline in its position as the largest and dominant public-service
provider in the Xiangjiang New Area, and
- Rapid increases in its debt and leverage with less corresponding
government payments.
The principal methodology used in this rating was Local Government Financing
Vehicles in China Methodology published in July 2020 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216254.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Hunan Xiangjiang New Area Development Group Co., Ltd is 90%
owned by the Changsha State-owned Assets Supervision and Administration
Commission and 10% owned by Hunan State-Owned Investment
& Operation Co., Ltd. It is a key company involved
in the development of the Xiangjiang New Area in Changsha, Hunan
Province. The company mainly engages in the primary land development
and construction of infrastructure projects in the Xiangjiang New Area.
Its assets totaled RMB87.5 billion at the end of 2020.
The local market analyst for this rating is Yan Li, +86 (106)
319-6572.
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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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_1288435.
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The first name below is the lead rating analyst for this Credit Rating
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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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Ivan Chung
Associate Managing Director
Corporate Finance Group
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