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
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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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Client Service: 852 3551 3077
Ivan Chung
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
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Moody's Investors Service Hong Kong Ltd.
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