Hong Kong, November 20, 2019 -- Moody's Investors Service has assigned a Baa3 senior unsecured rating
to the proposed USD green bonds to be issued by Jiangxi Provincial Water
Conservancy Investment Group (China) Limited, a wholly-owned
subsidiary of Jiangxi Provincial Water Conservancy Investment Group Corp
(Jiangxi Water, Baa3 stable).
The bonds will be irrevocably and unconditionally guaranteed by Jiangxi
Water.
The outlook is stable.
Jiangxi Water plans to use the net proceeds mainly to refinance its existing
debts and fund its infrastructure projects in China in alignment with
a green bond framework.
RATINGS RATIONALE
Jiangxi Water's Baa3 issuer rating combines (1) its Baseline Credit
Assessment (BCA) of b1 and (2) a four-notch uplift, based
on Moody's assessment of a high likelihood of support from and a
high level of dependence on the Jiangxi provincial government and ultimately
the Government of China (A1 stable) in times of need.
"Jiangxi Water's BCA of b1 reflects its solid and growing
market position in water utilities in Jiangxi Province, and the
financial support it receives from the Jiangxi Provincial Government,
with such support closely linked to the latter's fiscal budget,"
says Ralph Ng, a Moody's Assistant Vice President and Analyst.
Moody's expects that Jiangxi Water's share of the water supply
market in Jiangxi Province will increase over time to 50% over
the next two years from just about 40% as of end-Oct 2019,
driven by its ongoing acquisitions of water supply plants in the province.
In addition, stable water supply under a concession framework provides
the company with stable cash flow.
Jiangxi Water plays an important role in investing in water infrastructure
for the province. The receipt of recurring construction grants
from the provincial government also supports its BCA of b1.
"However, volatility in government grant payments, operating
and regulatory challenges and the company's high financial leverage
pose key challenges to Jiangxi Water's BCA," adds Ng.
Jiangxi Water's credit metrics are sensitive to cash payments it
receives from the government, reflecting its reliance on such financial
support. The volatility of such government grants — in terms
of both timing and the amounts paid — will therefore affect the
stability of the company's credit metrics.
Moody's points out the actual cash payment from the government was
lower than expected in 2018, which weakened credit metrics in 2018
including adjusted funds from operations (FFO) interest cover at about
1.5x.
The high leakage ratios of Jiangxi Water's water supply plants reflect
its aging water pipes and the low operating standards of its newly acquired
facilities. Such operating challenges also imply additional capital
spending for the renewal of the company's facilities.
Because of Jiangxi Water's sizable capital spending plan and modest
cash flow from its operating assets, Moody's expects the company's
financial profile to remain weak over the next two years. Specifically,
Moody's estimates around RMB3.5 billion in average annual
capital spending in 2019-20, and FFO interest cover hovering
around 1.5x during the same period.
The four-notch uplift from the company's BCA reflects Moody's
assessment of the "High" likelihood that Jiangxi Water will
receive support from the Jiangxi provincial government and ultimately
the Government of China, when needed.
The "High" dependence level reflects that Jiangxi Water and
the central government are exposed to common political and economic event
risks.
Moody's support assessment reflects Jiangxi Water's (1) strategic
importance as a commercial public sector enterprise, because of
the company's policy role in providing water conservancy and utilities
services; and (2) 100% ownership by the Department of Water
Resources in Jiangxi Province and ultimately the Jiangxi government.
The stable outlook on Jiangxi Water's issuer rating reflects (1)
the stable outlook on China's sovereign rating; and (2) the consideration
that Jiangxi Water's BCA remains appropriately positioned at b1.
The stable rating outlook also reflects Moody's expectation that
(1) Jiangxi Water's financial performance and liquidity management
will remain within Moody's base case expectation; and (2) the
strategic importance of the company will not be materially affected by
regulatory changes.
Moody's could upgrade the rating if (1) the likelihood of government
support for Jiangxi Water increases; or (2) Jiangxi Water's
standalone credit profile improves significantly.
Positive momentum on the BCA could emerge over time if the company's standalone
credit profile improves materially, such that FFO interest cover,
after taking into account government payments and subsidies, surpasses
2.5x on a sustained basis.
Moody's could downgrade the rating if (1) the likelihood of support
for Jiangxi Water decreases; or (2) Jiangxi Water's standalone
credit profile weakens meaningfully.
Moody's could also downgrade the rating if (1) Jiangxi Water's
business model becomes less predictable and the company engages in riskier
business segments; or (2) there is a material weakening in Jiangxi
Water's market position and policy functions.
Financial indicators for a downgrade include FFO interest cover,
after taking into account government payments and subsidies, falling
below 1.25x over a prolonged period.
The methodologies used in this rating were Regulated Water Utilities published
in June 2018, and Government-Related Issuers published in
June 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Established in 2008, Jiangxi Provincial Water Conservancy Investment
Group Corp is the sole provincial-level water conservancy state-owned
enterprise in Jiangxi Province. Its business activities include
the investment in and operation of water conservancy projects, water
supply and power projects.
The company is 100% owned by the Department of Water Resources
in Jiangxi Province, and ultimately owned by the Jiangxi Provincial
Government.
REGULATORY DISCLOSURES
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 ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
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the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
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for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
Policy for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
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.
Ralph Ng
Asst Vice President - Analyst
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
Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
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
