Hong Kong, April 30, 2019 -- Moody's Investors Service has assigned a provisional (P)A2 senior unsecured
rating to the proposed USD3 billion medium-term note (MTN) program
of Rongshi International Finance Limited. The MTN program will
be unconditionally and irrevocably guaranteed by State Development &
Investment Corp., Ltd. (SDIC, A2 stable).
The rating outlook is stable.
The proceeds from the MTN program will be used by SDIC to refinance its
indebtedness and for general corporate purposes.
RATINGS RATIONALE
The (P)A2 rating of the proposed MTN program reflects the unconditional
and irrevocable guarantee from SDIC.
"The MTN program will provide SDIC with flexibility to raise term funding
in the offshore bond market and improve its debt maturity profile,"
says Chenyi Lu, a Moody's Vice President and Senior Credit Officer,
and who is also Moody's International Lead Analyst for SDIC.
SDIC's A2 issuer rating is primarily driven by (1) the company's standalone
credit profile, as illustrated by its baa3 Baseline Credit Assessment
(BCA); and (2) Moody's assessment of a very high likelihood
of support from and very high level of dependence on its owner,
the Government of China (A1 stable), with these factors providing
a four-notch uplift to the company's final rating.
The very high likelihood of support reflects (1) SDIC's 100% ownership
by the central government; (2) SDIC's status as a national policy
investment company and its close link with the central government;
(3) the high importance of the company's core investments, such
as its hydropower, ports, potash and financial guarantee businesses,
to the national economy; (4) the company's role as a pilot for the
Chinese government to implement state-owned enterprise reform;
and (5) the large portfolio of investment funds managed by the company
for central and local government agencies.
SDIC's baa3 BCA is underpinned by the company's diversified business portfolio,
the strong market positions of its key business segments — such
as the power generation, ports, financial services and natural
resources sectors — good track record of active asset recycling
and strong access to liquidity.
However, the company's BCA is constrained by its modest financial
profile, large investment and capital spending plan, and the
execution risks related to development in new areas.
The stable outlook on SDIC's rating reflects Moody's expectations that
over the next 12-18 months (1) the company's importance to the
economy and the Chinese government's ability to provide support will remain
intact, and (2) the very high likelihood of support from the Chinese
government will provide an additional cushion for SDIC's A2 rating in
case its BCA is lowered by one notch.
Moody's could upgrade SDIC's rating if: (1) the Chinese government's
ability to provide support strengthens, which would be illustrated
by an upgrade of China's sovereign rating, and/or (2) there is a
material improvement in SDIC's BCA; with credit metrics that would
indicate such a material improvement including market value leverage lower
than 20%-25% and (FFO + interest)/interest coverage
higher than 3x-4x.
Moody's could downgrade SDIC's rating if: (1) the Chinese
government's ability to provide support weakens, which would be
illustrated by a downgrade of China's sovereign rating, or if SDIC's
strategic importance to the Chinese government declines significantly,
and/or (2) SDIC's standalone credit quality severely deteriorates,
for example, as a result of highly aggressive debt-funded
investments or a significant increase in credit contagion risk from its
investees.
Financial metrics that Moody's would consider for a rating downgrade include
(1) a holding company-level market value leverage higher than 60%,
and/or (2) (FFO+interest)/interest coverage lower than 1.0x
for a prolonged period.
The methodologies used in this rating were Investment Holding Companies
and Conglomerates published in July 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 on 5 May 1995, State Development & Investment Corp.,
Ltd. is a state-owned investment holding company,
wholly owned by China's State Council. Over the past two decades,
it has developed a large investment portfolio, valued at around
RMB128 billion at the end of 2017.
Its core investments are in the power generation, ports and railway,
financial services and advanced manufacturing sectors.
The local market analyst for this rating 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
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
