Hong Kong, August 02, 2022 -- Moody's Investors Service has assigned a Baa2 senior unsecured rating to the proposed bond to be issued by Zhaohai Investment (BVI) Limited and guaranteed by Tianjin Binhai New Area Construction & Investment Group Co., Ltd. (TBCI, Baa2 stable).
The rating outlook is stable.
The net proceeds will be used for refinancing the company's offshore debt.
RATINGS RATIONALE
TBCI's Baa2 rating incorporates the Tianjin government's capacity to support (GCS) score of a3, and Moody's assessment of how the company's characteristics affect the Tianjin government's propensity to support, resulting in a two-notch downward adjustment.
Tianjin city's GCS score reflects its status as one of the four municipalities that report directly to the Government of China (A1 stable), its relatively weak economic and fiscal metrics in recent years and high risks from its contingent liabilities compared with those of its peers.
The Baa2 ratings also incorporate (1) Moody's expectation of Tianjin government's propensity to support the company, which is based on the government's 100% ownership of TBCI, (2) the company's strategic role as the largest platform for infrastructure construction in Tianjin Binhai New Area, and (3) its established track record of government cash payments.
The two-notch downward adjustment reflects TBCI's large debt associated with public-policy projects and its vulnerability to bond market volatility due to investors' widespread risk aversion toward state-owned enterprises (SOEs) from regions with relatively weak fiscal metrics and high contingent liability risks.
The rating takes into account the following environmental, social and governance (ESG) factors.
TBCI bears high social risks as it implements public policy initiatives by building public infrastructure in Tianjin Binhai New Area. Demographic changes, public awareness and social priorities shape the company's development targets and ultimately affect Tianjin city government's propensity to support the company.
Governance considerations are also material to the ratings, as TBCI is subject to oversight and reporting requirements to its owner regional and local government (RLG), reflecting its public policy role and status as a government-owned entity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
TBCI's stable rating outlook reflects (1) the stable outlook on China's sovereign rating; (2) Moody's expectation that the Tianjin government's GCS score will remain stable; and (3) Moody's view that the company's business profile and integration with the Tianjin government, and the government's control and oversight of the company, will remain largely unchanged over the next 12-18 months.
TBCI's issuer rating could be upgraded if: (1) China's sovereign rating is upgraded, or Tianjin's GCS strengthens, which could be the result of a significant strengthening in the city's economic or financial profile, or an improvement in its ability to coordinate timely support; or (2) TBCI's characteristics change in a way that strengthens the Tianjin government's propensity to provide support, such as through:
– 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 the company's operational and debt-servicing needs.
– an increase in the company's strategic importance to the city government, for example, a significant increase in the share of public-policy projects in the city.
TBCI's issuer rating could be downgraded if: (1) China's sovereign rating is downgraded; or (2) Tianjin's GCS weakens, which could be a result of a significant weakening in Tianjin's economic or financial profile, or a deterioration in its ability to coordinate timely support; (3) changes occur in the Chinese government's policies that prohibit RLGs from providing financial support to local government financing vehicles (LGFV); or (4) TBCI's characteristics change in a way that weakens its RLG owner's propensity to provide support, such as through:
– significant changes in its core business, including substantial expansion into commercial activities at the cost of public services or considerable losses in commercial activities;
– a decline in its position as one of the largest and dominant public service providers in Tianjin; or
– a rapid increase in its debt and leverage with less corresponding government payments, leaving the company reliant on high-cost financing, including through nonstandard channels.
The principal methodology used in this rating was Local Government Financing Vehicles in China Methodology published in April 2022 and available at https://ratings.moodys.com/api/rmc-documents/386644. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Established in 2006, Tianjin Binhai New Area Construction & Investment Group Co., Ltd. is an investment and financing platform incorporated in Tianjin. It is wholly owned by the Tianjin State-Owned Assets Supervision and Administration Commission and operates under the supervision of the Tianjin Binhai New Area Government.
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 on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures 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 ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement 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 case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
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Regulatory disclosures contained in this press release apply to the credit 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 https://ratings.moodys.com/documents/PBC_1288235.
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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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Ivan Chung
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
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