Hong Kong, October 25, 2018 -- Moody's Investors Service has assigned a Baa3 senior unsecured rating
to the proposed notes to be issued by Hunan Xiangjiang New Area Development
Group Co., Ltd (Baa3 stable).
The rating outlook is stable.
The proceeds from the notes will be used for the refinancing of existing
indebtedness and for general working capital and investment activities
of the Group.
RATINGS RATIONALE
Hunan Xiangjiang's Baa3 issuer rating primarily combines (1) its ba3 baseline
credit assessment (BCA); and (2) Moody's assessment of a strong likelihood
of support from and high level of dependence on the Government of China
(A1 stable) when in need, which results in a rating that is three
notches above its BCA.
Moody's support assessment reflects Hunan Xiangjiang's important
role in the development of the Xiangjiang New Area in Changsha,
its 100% ownership by the Changsha Government, and the company's
track record of receiving support from the Changsha Government.
Hunan Xiangjiang is 100% directly owned by the Changsha Government
and classified as one of the four functional state-owned enterprises.
The company is mandated by the Changsha Government and the Xiangjiang
New Area Administrative Commission to develop and maintain the Xiangjiang
New Area.
As one of the 19 national-level new areas and the only one in Hunan
Province, the Xiangjiang New Area is economically important to Changsha
city and Hunan Province. The success of the Xiangjiang New Area
also has significant provincial and national strategic importance.
Because Hunan Xiangjiang is the primary government-owned entity
for the development of the Xiangjiang New Area, its importance to
the area is unlikely to change in the foreseeable future.
As such, Moody's believes the central government would support efforts
by the Changsha Government and the Hunan Government to prevent the company
from defaulting; thereby avoiding any disruptions to the development
of the new area. This support can take various forms, including
government subsidies, capital or asset injections, as well
as loans from policy and state-owned banks.
Hunan Xiangjiang's BCA of ba3 primarily reflects the regular government
cash payments for its public policy activities and its proven access to
domestic funding.
However, Hunan Xiangjiang's BCA is constrained by the company's
high geographic concentration in Changsha, small scale of revenue
and cash flow, and large exposure to volatile land prices.
Hunan Xiangjiang's commercial operations are relatively small in terms
of revenue and do not generate meaningful earnings to cover its operating
and interest expenses. As a result, the company relies on
government cash payments for its public policy activities to pay interest
and operation costs.
Because of the large government cash payments, Hunan Xiangjiang's
(adjusted funds from operations (FFO) from non-government transactions
+ government cash payments + interest)/interest stood at 5.2x
in 2017.
The company's adjusted interest coverage will likely decline gradually
to 3.0x-3.5x over the next 12-18 months.
Moody's expects around RMB4 billion of government cash payments
in 2018, including RMB1.25 billion in refunds from land sales
and RMB1.65 billion in fund allocations for infrastructure projects;
both amounts of which are included in the government's 2018 fiscal budget.
However, Moody's says that the company's debt level will likely
continue to grow by RMB5-RMB6 billion per year to support the development
of the Xiangjiang New Area. This level of interest coverage can
support Hunan Xiangjiang's BCA at the ba3 level.
The stable rating outlook reflects: (1) the stable outlook on China's
sovereign rating; and (2) the consideration that Hunan Xiangjiang's
BCA is appropriately positioned at the current level.
Moody's could upgrade the rating if: (1) the likelihood of
support for Hunan Xiangjiang increases; or (2) Hunan Xiangjiang's
standalone credit profile improves significantly, or both.
Moody's could raise Hunan Xiangjiang's BCA if the company's business
or financial profile improves. Credit metrics indicative of upward
pressure on its BCA include (adjusted FFO from non-government transactions
+ government cash payments + interest)/interest exceeding 4.0x
on a sustained basis.
Moody's could downgrade the rating if: (1) the likelihood
of support for Hunan Xiangjiang decreases; or (2) Hunan Xiangjiang's
standalone credit profile weakens meaningfully, or both.
Moody's could lower Hunan Xiangjiang's BCA if its business or financial
profiles deteriorate materially. Credit metrics that could indicate
a potential downgrade of the BCA include (adjusted FFO from non-government
transactions + government cash payments + interest)/interest
below 2.0x on a sustained basis.
The methodologies used in this rating were Business and Consumer Service
Industry published in October 2016, and Government-Related
Issuers published in June 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
Hunan Xiangjiang New Area Development Group Co., Ltd is 100%
directly owned by the Changsha Government. 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 RMB55 billion at the end of 2017.
The local market analyst for these ratings is Cindy Yang, +86
(10) 6319-6570.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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
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.
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
Clement Wong
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
