Hong Kong, July 28, 2020 -- Moody's Investors Service has assigned a (P)A1 senior unsecured rating
to Beijing Infrastructure Investment Co., Ltd.'s (BII,
A1 stable) medium term note (MTN) program for notes to be issued by Eastern
Creation II Investment Holdings Ltd. (the Issuer) and unconditionally
irrevocably guaranteed by BII.
At the same time, Moody's has assigned an A1 senior unsecured rating
to the proposed drawdown of USD senior unsecured notes under the MTN program,
the notes of which are unconditionally and irrevocably guaranteed by BII.
BII will use the proceeds from the drawdown to refinance existing debt
and for general corporate purposes.
The MTN program can also issue notes supported by a keepwell deed,
and Moody's maintains the (P)A2 and A2 senior unsecured ratings
previously assigned to the program and to any notes issued which are supported
by this structure. The notes under the keepwell structure will
be unconditionally and irrevocably guaranteed by Beijing Infrastructure
Investment (Hong Kong) Limited (BII HK), a wholly owned subsidiary
of BII. These notes will also be supported by a keepwell and liquidity
support deed, and deed of equity interest purchase undertaking (EIPU)
between BII, the Issuer, BII HK and the bond trustee.
Ratings on individual drawdowns issued under the program will be subject
to Moody's review of the terms and conditions set forth in the final base
and supplementary offering and the pricing supplements of the drawdowns.
The ratings outlook is stable.
RATINGS RATIONALE
The (P)A1 senior unsecured MTN rating and the A1 senior unsecured rating
on the MTN drawdown reflect the unconditional and irrevocable guarantee
from BII. Obligations under the guarantee will rank pari passu
with BII's existing and future unsecured and unsubordinated obligations.
Therefore, the ratings are at the same level as BII's A1 issuer
rating.
Moody's also expects that the size of the drawdown will be manageable
as compared with the size of BII's total debt, and therefore
will not negatively impact BII's A1 issuer rating.
The A2 rating of the note drawdowns under a keepwell reflects BII's willingness
to support the notes. However, a keepwell is different from
an explicit guarantee in terms of the protection it provides and the way
it is enforced, as reflected in the one-notch differential
with BII's issuer rating.
BII's A1 issuer rating combines (1) its baa2 Baseline Credit Assessment
(BCA); and (2) a four-notch uplift reflecting Moody's assessment
of a very high likelihood of support from the Beijing municipal government,
and ultimately, the Government of China (A1 stable), in times
of need.
Moody's support assessment is underpinned by BII's primary role in executing
the capital city's public transport policies, which are not commercially
viable but of national importance, its 100% ownership by
the Beijing municipal government and its solid track record of recurring
government support.
BII's BCA of baa2 is underpinned by the predictable grants and subsidies
provided by the Beijing municipal government, its strong market
position in the local public transport area and its proven access to the
onshore credit markets. Nevertheless, the company's BCA is
constrained by its sizable capital spending needs and exposure to the
property sector. Moody's expect BII's leverage before considering
government cash payments to remain high over the next 1-2 years,
given its massive capital spending plan and modest earnings.
The stable outlook on BII's rating reflects (1) the stable outlook on
China's sovereign rating; and (2) the consideration that BII's BCA
is appropriately positioned at the current level.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward potential for BII's issuer rating is limited, given that
the A1 rating is already at the same level as China's sovereign rating.
Moody's could upgrade BII's BCA if the company's business or financial
profile improves. Credit metrics indicative of upward pressure
on its BCA include (1) adjusted debt/capitalization falling below 45%;
and (2) adjusted funds from operations to interest coverage (including
government grants) exceeding 4.0x, on a sustained basis.
The rating could be downgraded if (1) the likelihood of support for BII
decreases; (2) BII's standalone credit strength weakens meaningfully;
or (3) there is a material weakening in BII's policy functions.
BII's BCA could be downgraded if there is a material deterioration in
its business or financial profile, for example, because of
(1) the company taking on higher-risk, commercial or leveraged
non-metro businesses; or (2) material changes in the ongoing
government support, such that annual financial government support
is insufficient to cover the equity portion of its annual capital spending,
annual debt servicing and operating losses from metro operations,
if any, on a sustained basis.
Credit metrics that would indicate downward pressure on its BCA include
(1) adjusted debt/capitalization exceeding 65%; and (2) adjusted
funds from operations interest coverage (including government grants)
falling below 2.0x on a sustained basis.
However, all other things being equal, a downgrade of BII's
BCA may not immediately affect its final rating, given the very
high level of expected support from the Beijing and ultimately the Chinese
government.
The rating also considers the following environmental, social and
governance (ESG) factors.
The rapid and widening spread of the coronavirus outbreak globally,
deteriorating China and global economic outlook, falling oil prices,
and asset price declines are creating a severe and extensive credit shock
across many sectors, regions and markets. The combined credit
effects of these developments are unprecedented. The metro sector
in China has been significantly affected by the shock given government
containment measures and its sensitivity to passenger traffic demand and
sentiment. Moody's regards the coronavirus outbreak as a social
risk under our ESG framework, given the substantial implications
for public health and safety. In particular, BII's operation
remains vulnerable to further spread of coronavirus, and the pace
of regional economic activities resumption.
BII's exposure to environmental risk is low, given the important
role mass transit operations play in reducing carbon emissions when compared
to other modes of transport.
BII's exposure to governance risks is low. The company's overall
business profile and financial profile are underpinned by its public service
nature, and it is subject to a high level of government supervision
and an established fiscal allocation mechanism.
The methodologies used in these ratings were Mass Transit Enterprises
Methodology published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1105431,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Beijing Infrastructure Investment Co., Ltd. (BII)
is authorized by the Beijing municipal government to own, invest
in, finance and operate the subway system in Beijing.
As of the end of 2019, there were 23 interconnecting lines in operation
in the Beijing urban rail transit system, totaling 699.3
kilometers, of which BII owns and operates 16 lines. The
company's daily passenger traffic exceeded 10.86 million in 2019,
making it China's largest subway system based on ridership.
As of 2019, 45.68% of BII's revenue came from infrastructure
investment, financing, construction operation and management.
The remainder was generated from other businesses complementary to its
rail operations, such as property development, primary land
development and industrial investments.
BII is wholly owned by the Beijing State-owned Assets Supervision
and Administration Commission (SASAC) and was formed in November 2003.
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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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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support provider and in relation to each particular credit rating action
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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
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
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Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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.
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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.
Ada Li
VP - Senior Credit Officer
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
