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Rating Action:

Moody's assigns Baa3 to Chengdu High-Tech Investment Group's proposed USD notes

 The document has been translated in other languages

15 Oct 2021

Hong Kong, October 15, 2021 -- Moody's Investors Service has assigned a Baa3 senior unsecured rating to the proposed USD notes to be issued by Chengdu High-Tech Investment Group Co. Ltd. (Chengdu Hi-tech, Baa3 positive).

The outlook is positive.

The proceeds from the notes will be used to refinance the company's offshore indebtedness due within one year.

RATINGS RATIONALE

"Chengdu Hi-tech's Baa3 rating reflects the company's dominant role in undertaking public policy projects in the Chengdu High-tech Industrial Development Zone (Chengdu Hi-tech zone) and our expectation of the Chengdu city government's propensity to support the company. The Chengdu Hi-tech zone is one of the most urbanized and developed areas in Chengdu," says Chenyi Lu, a Moody's Vice President and Senior Credit Officer.

Chengdu Hi-tech's Baa3 issuer rating is based on (1) the Chengdu government's capacity to support (GCS) score of a3 and (2) Moody's assessment of how the company's characteristics affect the Chengdu government's propensity to support, resulting in a three-notch downward adjustment.

Apart from its existing policy role in the Chengdu Hi-tech zone, Chengdu Hi-tech will further expand its infrastructure investment over the next five years, notably in the area around the newly built Chengdu Tianfu International Airport, also known as Future Technology City. Moody's believes the company will further enhance its policy function and importance in Chengdu city as it undertakes these new projects.

To support the Chengdu city government's investment in the high-tech industry, Chengdu Hi-tech is building talent apartments in the Chengdu Hi-tech zone. This project could help attract more talent to Chengdu and could therefore receive different regulatory treatment compared with commercial property projects.

In addition, several major talent apartment projects will become available for presale in the coming months. Moody's expects the presale proceeds to be able to support the company's new phases of talent apartment construction, thus reducing its incremental debt growth. Moody's also expects the company's overall debt growth to gradually decline over the next 6-12 months, potentially improving its debt management.

Chengdu Hi-tech continues to have strong access to funding and a manageable contingent liability exposure.

Moody's assessment of Chengdu's GCS score reflects (1) the city's status as a provincial capital on one of the higher administrative levels in Moody's assessment of the hierarchy of regional and local governments (RLGs) in China, and (2) the city's relatively high contingent liability risks from state-owned enterprises (SOEs), although these risks are offset by its large and diverse economy.

Chengdu Hi-tech's Baa3 issuer rating also reflects the Chengdu government's propensity to support the company, based on (1) the Chengdu High-Tech Zone Administrative Committee's majority ownership of Chengdu Hi-tech, (2) the company's leading role in investing in, developing and operating the Chengdu Hi-tech zone, and (3) its record of receiving recurrent government payments to pre-fund its infrastructure investments and support other activities, which totaled RMB24 billion in 2018-20.

However, the three-notch downward adjustment from Chengdu's GCS score reflects Chengdu Hi-tech's (1) exposure to commercial activities, and (2) fast debt growth to support the development of the Chengdu Hi-tech Zone.

The rating also considers the following environmental, social and governance (ESG) factors.

Chengdu Hi-tech bears high social risks because it implements public-policy initiatives by building public infrastructure in Chengdu city. Demographic changes, public awareness and social priorities shape Chengdu Hi-tech's development targets and ultimately affect Chengdu government's propensity to support the company. In particular, Chengdu Hi-tech's talent apartment projects help the local government attract more talent, prevent population migration and develop high-tech industries in Chengdu.

Governance considerations are also material to the rating, as Chengdu Hi-tech is subject to oversight and reporting requirements to its owner RLG, reflecting its public policy role and status as a government-owned entity. Chengdu Hi-tech environmental risk exposure is low.

The positive outlook reflects the favorable trends in Chengdu Hi-tech's strategic importance in Chengdu city and debt management. In particular, Chengdu Hi-tech's increasing contribution to the new technological zone's development will likely enhance its strategic importance, while the rollout of its talent apartment projects will likely lower its incremental debt.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Moody's could upgrade the rating on the proposed notes if Chengdu Hi-tech's issuer rating is upgraded.

Chengdu Hi-tech's issuer rating could be upgraded if China's sovereign rating is upgraded or if the Chengdu city government's GCS score improves, which could arise from a significant strengthening in Chengdu's economic or financial profile or its ability to coordinate timely support.

Moody's could also upgrade Chengdu Hi-tech's issuer rating if the company's characteristics change in a way that enhances the Chengdu government's propensity to support. This could arise from (1) an increase in its strategic significance to Chengdu and higher-tier governments; (2) an improvement in the company's capital spending relative to government cash payments; or (3) an improvement in the overall risk profile of its commercial operations and investments compared with its public-policy assets.

Moody's could downgrade the rating on the proposed notes if Chengdu Hi-tech's issuer rating is downgraded.

A downgrade of Chengdu Hi-tech's issuer rating is unlikely, given the positive outlook. However, Moody's could return the outlook to stable if the abovementioned positive credit trends reverse. This could arise from an aggressive expansion that increases risks from its commercial business; or from a rapid debt and leverage increase without a corresponding rise in government payments, leaving the company reliant on higher-cost financing, including through non-standard channels.

The rating could also be downgraded if China's sovereign rating is downgraded or if the Chengdu government's capacity to support weakens, which could arise from a material worsening in Chengdu's economic or financial profile or in the government's ability to coordinate timely support. Changes in the Chinese government's policies that prohibit governments from supporting local government financing vehicles will also affect the rating.

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.

Chengdu Hi-tech primarily develops and operates the Chengdu Hi-tech zone, including developing infrastructure, providing industrial and office properties for companies and developing talent apartment projects. It is also engaged in industrial investment under government guidance and in the trading and construction business, which mainly serves local infrastructure needs. The company reported revenue and total assets of RMB10.3 billion and RMB125 billion, respectively, in 2020.

As of September 2021, Chengdu Hi-tech is 90% owned by the Chengdu High-Tech Zone Administrative Committee under the Chengdu government. The Sichuan Provincial Finance Department owns the remaining 10% stake.

The local market analyst for this rating is Sarah Xu, +86 (212) 057-4030.

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 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com 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.

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.

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 that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Chenyi Lu
VP - Senior Credit Officer
Corporate Finance Group
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

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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