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Rating Action:

Moody's assigns additional (P)A1 to Beijing Infrastructure's MTN and A1 to proposed MTN drawdown under guarantee structure

28 Jul 2020

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

These ratings are 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 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. Further information on the EU 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.

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

No Related Data.
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