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Rating Action:

Moody's assigns first-time A3 rating to Tianjin Binhai New Area Construction

 The document has been translated in other languages

22 Jun 2015

Hong Kong, June 22, 2015 -- Moody's Investors Service has assigned a first-time A3 issuer rating to Tianjin Binhai New Area Construction & Investment Group Co., Ltd. (TBCI).

At the same time, Moody's has also assigned a provisional (P)Baa1 senior unsecured rating to the proposed bonds issued by Zhaohai Investment (BVI) Limited, and unconditionally and irrevocably guaranteed by Binhai Jiantou (Hong Kong)Development Limited.

Binhai Jiantou is a wholly owned subsidiary of TBCI.

The proposed bonds will be supported by a Keepwell Deed, a Liquidity Support Deed, and a Deed of Equity Interest Purchase Undertaking between TBCI, Binhai Jiantou and the bond trustee.

The proceeds from the proposed issuance will be used to refinance existing indebtedness and for general corporate purposes.

The provisional status of the bond rating will be removed when Zhaohai Investment has completed the bond issuance upon satisfactory terms and conditions.

The outlook for all ratings is stable.

RATINGS RATIONALE

"TBCI's A3 issuer rating reflects the very close ties between the company and the Tianjin Municipal Government (unrated), given the government's full ownership in TBCI, as well as the strong oversight of the company by the government," says Franco Leung, a Moody's Vice President and Senior Analyst.

"TBCI's A3 issuer rating also reflects the company's public policy mandate of urban and infrastructure development in the Binhai New Area of Tianjin and its small focus on commercial operations," adds Leung.

Moody's points out that TBCI's public policy role is part of the broader national goal of integrating the economies of Beijing, Tianjin and Hebei province.

Moody's therefore believes TBCI will receive support from the Tianjin Binhai New Area Government (Binhai government) and ultimately the Tianjin Municipal Government in times of need, given the reputation risk to the governments should TBCI default. As a result, the company's issuer rating is substantially higher than its standalone baseline credit assessment of b2.

More specifically, Moody's expectation of very high support in times of need reflects:

• TBCI's policy mandate to develop infrastructure within the Binhai New Area, and its role as a sole government investment and financing platform for the Binhai government. TBCI is uniquely positioned to provide public urban works and social services in the area, given its business location and the fact that its operations mainly focus on its public mandate. TBCI is also among one of the most active Tianjin-based issuers for onshore notes, with funds borrowed to develop infrastructure in the Binhai New Area.

• The Binhai New Area's high importance to Tianjin city — as evidenced by the area's significant contribution to the Tianjin government — due to the presence of a number of important functional zones within the area. The Binhai New Area contributes about 56% of the Tianjin city's GDP, and 30% of the government's fiscal revenues in 2014.

• The Tianjin government's grants to TBCI, totaling RMB1,018 million in 2012-2014 ; the Tianjin government's capital injections into TBCI, totaling RMB10.6 billion in 2006-2012.

• In addition, Moody's notes the various land resources that the Tianjin and Binhai governments injected into TBCI over the years. Moody's expects that the governments will continue to provide grants, capital and land resources to support TBCI's operations.

• Close oversight by the Tianjin and Binhai governments; both of which are responsible for appointing TBCI's senior management.

The support letters from the State-owned Assets Supervision & Administration Commission (SASAC) of the Tianjin municipal government, as well as the Finance Bureau of the Tianjin and Binhai governments further reinforce Moody's view that the company is strategically important to these governments, and that there is a strong willingness on the part of the respective governments to support the company's offshore financing efforts, and to provide financial support to the company in case of need.

The issuer rating also reflects Moody's expectation that the central government will support the Tianjin government's efforts to provide aid to TBCI in times of stress, given the broader national policy goals that the company supports.

TBCI is well placed to carry out its mandate to develop the Binhia New Area. As previously mentioned, such development would support the central government's moves towards integrating the economies of Beijing, Tianjin and Hebei province.

In addition, given the traffic congestion in Beijing, the city's dense population, and its high levels of air pollution, the Chinese government (Aa3 stable) is moving manufacturing industries from Beijing to Tianjin and Hebei province. Moody's therefore believes that the Binhai New Area is one of the most important economic development zones nationally, and the development of the area is important to the central as well as municipal governments.

Given the evolving policy framework in China, Moody's expects that the ability of municipal governments to support local government financing vehicles (LGFVs) will reduce over time.

Moody's therefore believes that entities serving important local and national policy objectives are much more likely to remain supported over time.

Moody's points out that TBCI's issuer rating also considers the absence of a direct guarantee from the Tianjin Municipal Government, the evolving policy framework in China on LGFV debt, and the general opacity around the framework for providing government support at a time of urgent need. These factors have resulted in a rating that is lower than what it might otherwise be.

TBCI has funded the development of infrastructure projects within the Binhai New Area primarily with debt, and will hand over the completed projects to the Binhai government in return for payments over an extended period from the Binhai government and, ultimately, the Tianjin municipal government.

Because of the long payback period for infrastructure projects, TBCI's leverage is high. In particular, its adjusted debt/EBITDA was at 100.6x in 2014. At end-2014, TBCI's contracts with the Binhai government totaled 35, and were valued at RMB67.6 billion.

The (P)Baa1 rating for the proposed USD bond is one notch below TBCI's issuer rating, reflecting the absence of a direct guarantee from TBCI.

At the same time, the bond rating reflects the proposed support structure, underpinned by the Keepwell Deed, Liquidity Support Deed and Equity Interest Purchase Undertaking between TBCI, Binhai Jiantou and the bond trustee.

The bond is also supported by a cross-border RMB Standby Facility Agreement between TBCI and Binhai Jiantou.

The (P)Baa1 senior unsecured rating assigned to the proposed bonds is further supported by the guarantor's status as the sole offshore financing platform for TBCI, and the reputational damage to TBCI, the Binhai government and the Tianjin municipal government, should the issuer or guarantor fail to honor its obligations under the proposed USD bond.

The stable rating outlook reflects Moody's expectation that TBCI will maintain its public policy role and retain its strategic importance to the municipal and central governments.

In Moody's view, upward rating pressure is limited over the next 1-2 years, given the company's high financial leverage and the ongoing evolution of the policy surrounding the debt of LGFVs.

However, over time, upward pressure could emerge if there is: (1) evidence of much stronger support from the Tianjin municipal government, such as a direct guarantee; (2) a material lowering of the company's debt leverage; or (3) an improvement in the transparency of the policy framework for the funding of TBCI's debt.

On the other hand, TBCI's ratings could be downgraded if:

(1) There is evidence of weakened support from the Tianjin municipal government, or the municipal government's credit profile significantly weakens, or the municipal government ceases to own a controlling stake in TBCI;

(2) The company expands aggressively outside its core business, and its business increasingly focuses on commercial operations; such a situation would weaken its strategic linkage with the Tianjin municipal government;

(3) The policy framework for local government finance evolves in a manner that increases the risk that TBCI's debt will not be supported by the Tianjin municipal government; or

(4) There are revisions to the national policy goals that the company's activities currently support; a situation which would reduce the likelihood of central government support.

The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Other methodologies used include the Government-Related Issuers methodology published in October 2014. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Established in 2006, Tianjin Binhai New Area Construction & Investment Group Co. Ltd (TBCI) is an investment and financing platform incorporated in Tianjin. It is wholly owned by the

Tianjin SASAC and operates under the supervision of the Tianjin Binhai New Area Government.

TBCI operates in accordance with the general development plan for the Binhai New Area, and its operations include transportation infrastructure construction and operations, civil project construction, environmental protection and clean energy, regional development and construction, and other ancillary businesses such as materials trading and asset management.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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 following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating as indicated:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person(s) that paid Moody's to determine this credit rating.

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.

Franco Leung
Vice President - Senior Analyst
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
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077

Moody's assigns first-time A3 rating to Tianjin Binhai New Area Construction
No Related Data.
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