Hong Kong, June 14, 2019 -- Moody's Investors Service has assigned a first-time Ba1 corporate
family rating (CFR) to Yangzhou Economic and Technological Development
Zone Development Corporation (YETDC).
Moody's has also assigned a Ba1 rating to the proposed USD senior
unsecured notes to be issued by YETDC.
The ratings outlook is stable.
The proceeds of the notes will be used by YETDC for general corporate
purposes.
RATINGS RATIONALE
YETDC's Ba1 CFR primarily combines (1) its b1 Baseline Credit Assessment
(BCA); and (2) Moody's assessment that there is a strong likelihood
that the company will receive support from, and a high level of
dependence on, the Government of China (A1 stable), when in
need, which results in a CFR that is three notches above its BCA.
Moody's support assessment reflects YETDC's primary role in
developing the Yangzhou Economic and Technological Development Zone (the
Development Zone), its ultimate 100% ownership by the Yangzhou
Government, and track record of receiving strong government support.
YETDC historically was mainly engaged in two businesses: (1) primary
land development; and (2) infrastructure construction in the Development
Zone as an agent on behalf of the government. Starting from 2019,
YETDC has also undertaken social housing construction in the Development
Zone.
The Yangzhou Economic and Technological Development Zone was established
in 1992, and elevated to a national level Economic Technological
Development Zone in 2009. There are currently 219 national level
Economic Technological Development Zones in China. Such zones benefit
from favorable policies on foreign investments.
The Yangzhou Economic and Technological Development Zone plays an important
role in the upgrading of Yangzhou's industries and is also a key
driver of the city's economic development. For example,
it accounted for 21% of Yangzhou's total export and import
volume and ranked best in attracting foreign direct investment among the
10 districts in Yangzhou in 2017.
The support assessment also considers the reputational and contagion risks
that could arise if YETDC were to default, given YETDC's status
as the second largest government-owned entity in Yangzhou City,
and its sizeable amount of domestic bonds outstanding of RMB12.7
billion at the end of 2018.
As such, Moody's believes the central government would support efforts
by Yangzhou City and the Jiangsu Provincial Government in preventing YETDC
from defaulting; thereby avoiding disruption to the domestic financial
market. This support can take various forms, including government
subsidies, capital or asset injections, as well as loans from
policy and state-owned banks.
The high dependence level reflects the fact that YETDC and the central
government are exposed to common political and economic event risks.
YETDC's BCA is driven by 1) its monopoly position for primary land
development, infrastructure and social housing construction within
the Development Zone; 2) the strong and recurring government cash
payments to cover the company's investments and debt service;
and 3) YETDC's good access to domestic funding.
YETDC has a monopoly position in primary land development and infrastructure
construction in the Development Zone. It is also appointed by the
government as the only platform to undertake social housing projects in
the zone starting in 2019.
YETDC received on average around RMB4 billion in government cash payments
per annum during 2013-2018, in the form of operating subsidies,
capital injections and project repurchases. However, the
cash payment from the government varied considerably, due to the
timing of project completion. For example, the company received
around RMB2 billion, RMB4 billion and RMB9 billion in cash payments
respectively in 2016, 2017 and 2018.
Moody's expects that YETDC will receive around RMB3 billion in cash
payments from the government in 2019.
YETDC's BCA is constrained by its large investment need, and
the sizable amount of external guarantees and lending to other state-owned
enterprises (SOEs) in Yangzhou City, which entails significant contingent
liabilities.
The company's external guarantees accounted for around 33%
of YETDC's adjusted total debt, and lending to other SOEs
accounted for around 32% of YETDC's total assets at the end
of 2018. Although the counterparties are all SOEs and most of the
guarantees and lending were mandated by the city government, such
a situation raises the risk profile of YETDC, given the lack of
transparency of the counterparties' credit profile.
Moody's estimates that YETDC's adjusted total debt grew to
RMB29 billion at the end of 2018 from RMB22 billion at the end of 2016,
because of infrastructure investments and lending to other SOEs in Yangzhou.
Moody's expects that YETDC's debt level will stay at around
RMB30 billion at the end of 2019.
YETDC held cash and cash equivalents of around RMB3 billion at the end
of 2018. Together with expected cash payments from the government
of around RMB3 billion in 2019, these cash resources are enough
to cover the RMB3.5 billion in planned investments and projected
cash interest expense of around RMB1.2 billion.
As a key local SOE in Yangzhou City, YETDC has demonstrated good
access to the onshore debt capital markets and diversified funding channels
from domestic banks. Moody's expects that YETDC will be able
to refinance maturing debt of around RMB5.2 billion over the next
12 months.
The stable ratings outlook reflects (1) the stable outlook on China's
A1 sovereign rating; and (2) Moody's expectation that YETDC
will continue to receive strong and recurring government support.
Moody's could upgrade the ratings if (1) the likelihood of government
support for YETDC increases; and/or (2) Moody's upgrades YETDC's
BCA.
Moody's could upgrade YETDC's BCA if the company's business or financial
profile improves, such as better stability and visibility of cash
flow from the government, and if YETDC materially reduces lending
and guarantees to other SOEs in Yangzhou.
Credit metrics indicative of upward pressure on its BCA include:
1) a decrease in adjusted debt, and/or adjusted debt/capitalization
falling below 50% on a sustained basis; and/or 2) adjusted
(FFO from non-government transactions + government cash payments
+ interest)/interest rising above 5.0x for a prolonged period.
Moody's could downgrade the ratings if (1) the likelihood of government
support for YETDC decreases; and/or (2) Moody's lowers YETDC's
BCA.
Moody's could lower YETDC's BCA if there is a material deterioration
in its business or financial profile, such as cash flow from the
government that is lower in amount than Moody's expects, a
much larger investment plan than Moody's expects, and continued
increase in lending and guarantees to other SOEs in Yangzhou.
Credit metrics indicative of a downgrade of its BCA include: 1)
adjusted debt/capitalization rising above 65% for a prolonged period;
and/or 2) adjusted (FFO from non-government transactions +
government cash payments + interest)/interest falling below 3.5x
for a prolonged period.
The methodologies used in these ratings were Business and Consumer Service
Industry published in October 2016, and Government-Related
Issuers published in June 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
Yangzhou Economic and Technological Development Zone Development Corporation
is 100% owned by the Yangzhou City Government.
The company is mandated by the Yangzhou Government to develop and operate
the Yangzhou Economic Technological Development Zone, including
infrastructure construction, primary land development, as
well as social housing construction in the Development Zone.
In 2018, the company reported assets of RMB43.1billion and
revenue of RMB1.87 billion.
The Local Market Analyst for these ratings is Janet Lu, +86
(21) 2057-4029.
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.
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.
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
