Hong Kong, June 16, 2017 -- Moody's Investors Service has assigned a first-time A1 issuer
rating to CRRC Corporation Limited (CRRC).
The rating outlook is stable.
RATINGS RATIONALE
CRRC's A1 issuer rating combines (1) its solid standalone credit quality,
which is equivalent to an A3 rating level, and (2) a two-notch
uplift based on our expectation of a very high level of support from its
parent, CRRC Group Corporation (CRRCG, unrated), which
is in turn 100% owned by the Chinese government (A1 stable).
CRRC accounted for 99%, 97%, and 95%
of CRRCG's consolidated revenue, EBITDA, and assets
in 2016. As such, Moody's considers the credit profiles
of the two entities as closely linked.
CRRCG's ability to support CRRC reflects our expectation of a very
high level of support to CRRCG from the Chinese government in times of
distress, based on the following factors:
(1) CRRCG, through CRRC, dominates China's rolling stock
industry and constitutes a strategically important component of China's
transportation infrastructure;
(2) CRRCG and CRRC play critical roles in executing China's domestic
infrastructure development plans as well as the Go Out strategy and One
Belt One Road initiative;
(3) CRRCG and CRRC together represent China's high-end equipment
manufacturing capability on the global stage.
"CRRC's standalone credit strength reflects its leading size by
revenue and order book in the rolling stock industry globally, its
dominant position as the sole rolling stock product supplier in China,
as well as its strong financial profile," says Chenyi Lu,
a Moody's Vice President and Senior Credit Officer, also the International
Lead Analyst of CRRC.
CRRC is the largest rolling stock company in the world by revenue and
market share. It generated total revenue of RMB224 billion,
including rolling stock revenue of RMB133 billion in 2016, or 33%
of global market share in new rolling stock products by Moody's
estimate.
Within China, CRRC holds a dominant position, accounting for
more than 90% of new railway and urban transit vehicle orders in
2016 by Moody's estimates, reflecting its defensible operating
profile and the high barriers to entry in China's rolling stock
markets. Moody's expects demand for CRRC's core rolling
stock products will remain high in the next several years, driven
by the Chinese government's 13th five-year plan to further
develop China's railway networks and urban rail transportation systems.
However, the pace of demand growth will moderate from the peak levels
seen during 2014-2015.
CRRC's standalone credit strength is also underpinned by its solid
financial profile. Its adjusted debt/EBITDA ranged between 1.5x
and 2.0x in the past three years, one of the strongest levels
among global peers.
"Moody's expects CRRC's adjusted debt/EBITDA to trend
toward 1.5x in 2017 and 2018, down from 2.0x at end-2016,
driven by steady revenues, solid cash flow generation, and
prudent financial policies," says Jin Wu, a Moody's
Vice President and Senior Credit Officer, also the Local Market
Analyst for CRRC.
CRRC's standalone credit strength is constrained by: (1) its concentrated
exposure to China's railway infrastructure spending; (2) increasing
industry competition; and (3) execution risks as it ventures into
international markets and new services and products.
CRRC's concentration in China's rolling stock industry exposes
it to fluctuations in the country's infrastructure spending.
For example, its revenue declined by 6% in 2016 as operating
mileage of newly completed railway slowed down and its key customer,
China Railway Corporation (unrated), reduced its tendering.
At the same time, the company's geographic and revenue diversification
through international expansion at a rapid pace exposes it to rising competition
and increased geopolitical and project execution risks. This concern
is partly mitigated by CRRC's ability to maintain decent margins
on its overseas projects through its own risk assessments and insurance
coverage by China Export and Credit Insurance Corp (unrated).
The stable outlook reflects that of China's sovereign rating,
as well as the stable profile of CRRC's standalone credit strength,
defensible operating profile, resilient demand prospects and solid
financials.
CRRC's issuer rating would be upgraded if the ability of the government
to provide support strengthens, as evidenced by an upgrade of the
sovereign rating.
On the other hand, CRRC's rating would be downgraded if China's
sovereign rating is downgraded, or if government support for CRRCG
and therefore indirectly for CRRC weakens.
A moderate weakening of CRRC's standalone credit strength would
not have an immediate impact on its A1 rating, given the very high
likelihood of support from the Chinese government, through its parent.
The principal methodology used in this rating was Global Manufacturing
Companies published in June 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
CRRC Corporation Limited is the world's largest rolling stock manufacturer
with a dominant position in China. Its main businesses include
the research and development, design, manufacture and sale
of, and provision of technical support for locomotives, electric
multiple units (EMU), rapid transit vehicles, and various
engineering and electronic machinery, equipment and components.
The company also manufactures wind power equipment, new materials,
construction machinery, and provides rolling stock related services.
It reported RMB224 billion in sales in 2016.
Listed on both the Shanghai and Hong Kong Stock Exchanges, CRRC
is directly and indirectly 55.91% owned by CRRC Group Corporation
(CRRCG, unrated) as of 2016, which is in turn 100%
owned by the State-owned Assets Supervision and Administration
Commission under the State Council of China. As of 2016,
CRRC accounted for 99% of CRRCG's sales and 95% of
assets.
The Local Market Analyst for this rating is Jin Wu, +86 10
6319 6560.
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.
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
