Hong Kong, October 03, 2018 -- Moody's Investors Service has assigned a first-time A3 issuer rating
to Anhui Provincial Investment Group Holding Co., Ltd.
(AIGH). Moody's has also assigned an A3 senior unsecured
rating to the proposed notes to be issued by AIGH.
The outlook for the ratings is stable.
The proceeds from the notes will be used for general corporate purposes,
including the refinancing and funding of future investments.
RATINGS RATIONALE
AIGH's A3 issuer rating primarily combines (1) its ba1 Baseline
Credit Assessment (BCA); and (2) our assessment of a "High"
likelihood of support from and "High" level of dependence
on the Government of China (A1 stable) when in need, which results
in a rating that is four notches above its BCA.
Moody's support assessment reflects these considerations: 1) AIGH
is the sole entity appointed by Anhui government for joint venture railway
projects in Anhui Province and Moody's considers that the national
railway projects in which AIGH invests have high strategic importance
to the Chinese government; 2) AIGH is 100% owned by the Anhui
government; 3) AIGH is designated by Anhui government to carry out
its plan for industrial upgrades in the province; furthermore,
AIGH plays an important role and supports national initiatives in shanty
town development and the promotion of poverty alleviation in Anhui Province;
and 4) the track record of strong support from the government.
The support assessment also considers the reputational and contagion risks
that may arise if it were to default, given AIGH's status as the
first and the largest state-owned capital investment company for
the Anhui government and one of the largest SOEs in Anhui Province in
terms of assets, revenue and profit contribution.
As such, Moody's believes that the central government is likely
to support efforts by the Anhui government to seek ways to prevent AIGH
from defaulting and thus avoid the risk of disruption to the domestic
financial markets that might occur otherwise. This support can
take various forms, including government subsidies, capital
or asset injections, and loans from policy as well as state-owned
banks.
AIGH's BCA of ba1 is underpinned by its large investment portfolio
with a high level of business diversification, recurring large capital
injections and subsidies from the Anhui government, and the high
credit quality of Anhui Conch Group -- one of the key investees of
AIGH.
The BCA is, however, constrained by the high debt burden associated
with railway investments, high geographic concentration of its investments
in Anhui Province, limited track record of its investments in industrial
funds, and modest financial metrics.
Moody's estimates that AIGH had an adjusted portfolio value of around
RMB116 billion at the end of 2017. Around 40% and 20%
of its investments in terms of portfolio value were in railway projects
and Anhui Conch Group respectively, which owns an around 37%
stake in Anhui Conch Cement Company Limited (A2 stable). The rest
of AIGH's investments are scattered across of a wider range of industries.
Dividends from Anhui Conch Group and other investments at the holding
company level are the main sources of recurring cash flow at the holding
company level. Moody's estimates that recurring cash flow
at the holding company level of around RMB3.4 billion will be sufficient
to cover its recurring expenses (mainly interest expense) in the next
1-2 years.
Moody's expects that AIGH will have major investment needs of around
RMB11-13 billion at the holding company level in the next few years.
Its investments will focus on railway projects and industrial funds.
Such investments will be funded by Anhui government capital grants of
around RMB7-8 billion and the rest by debt.
As such, Moody's expects AHIG's adjusted market value
based leverage (MVL) and adjusted (FFO+ interest)/interest coverage
will stay at around 43% and 1.2x respectively in next 1-2
years. Such metrics are weak for its ba1 BCA. However,
this situation is counterbalanced by AIGH's sound access to liquidity.
AIGH's has a good liquidity profile. Its cash balance of
around RMB 5.3 billion at the end of 2017 and recurring income
are sufficient to cover interest expenses. Although AIGH has RMB10
billion of debt maturing in 2018, Moody's expects that this
debt could be refinanced as AIGH has demonstrated good access to bank
credit and the capital markets, because of its status as a high
profile SOE owned by the Anhui government.
The stable outlook reflects 1) the stable outlook on the China sovereign
rating; and 2) the consideration that AIGH's BCA is appropriately
positioned at the current level.
AIGH's ratings could be upgraded, if (1) the likelihood of
support for AIGH increases, and/or (2) AIGH's BCA is upgraded.
AIGH's BCA could be upgraded if there is a material improvement
in AIGH's investment portfolio, including the enhancement
of key investees' credit quality, as well as a longer and
satisfactory investment track record.
Credit metrics that would indicate an upgrade of AHIG's BCA include
(1) (FFO+ interest)/interest coverage at the holding company level
higher than 2x and (2) MVL lower than 35% on a sustained basis.
AIGH's ratings could be downgraded if (1) the likelihood of support
for AIGH decreases, and/or (2) AIGH's BCA is downgraded.
AIGH's BCA could be downgraded as a result of aggressive debt-funded
investments, or a substantial weakening of the credit quality of
its major investees.
Financial metrics that Moody's would consider for a downgrade include
(FFO+ interest)/interest coverage at the holding company level lower
than 0.75x-1x, or MVL higher than 45%-50%
for a prolonged period.
The methodologies used in these ratings 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 in 1998, Anhui Provincial Investment Group Holding Co.,
Ltd. is a wholly state-owned capital investment holding
company under the Anhui provincial government. It is an important
platform for the Anhui government to invest in key infrastructure projects.
AIGH is also designated by the government to carry out industrial upgrades
and other public and social projects, such as shanty town development
and poverty alleviation. AIGH's investment portfolio had an estimated
adjusted portfolio value of around RMB116 billion at the end of 2017.
The local market analyst for these ratings is Kai Hu, +86 (21)
2057-4012.
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.
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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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Please see www.moodys.com for any updates on changes to
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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.)
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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
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
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