Hong Kong, October 16, 2019 -- Moody's Investors Service has assigned a first-time Ba2 corporate
family rating (CFR) to Nanjing Pukou Economic Development Co.,
Ltd. (Nanjing Pukou).
At the same time, Moody's has assigned a Ba2 backed senior
unsecured rating to the proposed notes issued by Boxinyuan International
Co., Ltd., and unconditionally and irrevocably
guaranteed by Nanjing Pukou.
All the ratings outlooks are stable.
The proceeds from the notes will be used to refinance offshore debt.
RATINGS RATIONALE
Nanjing Pukou's Ba2 CFR primarily combines (1) its b1 Baseline Credit
Assessment (BCA); and (2) Moody's assessment of a moderate likelihood
that the company will receive support from, and a high level of
dependence on the Nanjing Pukou District Government and ultimately the
Government of China (A1 stable), when needed, which results
in a rating that is two notches above its BCA.
Moody's support assessment reflects Nanjing Pukou's primary role in developing
the Nanjing Pukou Economic Development Zone (the Development Zone),
its ultimate 100% ownership by the Nanjing Pukou District Government,
and the track record of government support.
Nanjing Pukou has historically been engaged in two businesses: (1)
primary land development; and (2) infrastructure construction in
the Development Zone on behalf of the government.
The Development Zone plays an important role in upgrading Pukou District's
industries and driving its economic development. For example,
the district is able to attract reputable corporates such as Taiwan Semiconductor
Manufacturing Co Ltd (Aa3 stable) to the Development Zone.
The support assessment also considers the reputational and contagion risks
that could arise if Nanjing Pukou were to default, given Nanjing
Pukou's status as the second largest government-owned entity in
Pukou District in terms of total assets.
As such, Moody's believes the central government would support efforts
by Pukou District and the Nanjing City Government to prevent Nanjing Pukou
from defaulting, thereby avoiding disruption to the domestic financial
market. Such support can take various forms, including government
subsidies, capital or asset injections, as well as loans from
state-owned banks.
These factors are counterbalanced by the fact that Nanjing Pukou is owned
by the Pukou District government, which results in a lower likelihood
of support than for other entities owned by higher tier governments.
The high dependence level reflects the fact that Nanjing Pukou and the
central government are exposed to common political and economic event
risks.
Nanjing Pukou's BCA of b1 is driven by (1) its monopoly position in primary
land development and infrastructure construction within the Development
Zone; (2) the recurring but volatile government cash payments to
cover the company's investments and debt servicing; and (3) Nanjing
Pukou's good access to domestic funding.
Nanjing Pukou's BCA is constrained by its elevated debt leverage due to
the large investments needed to develop the Development Zone, estimated
at around RMB7-8 billion per year between 2019-2021.
The BCA is also constrained by the large amount of external guarantees
it provides to other state-owned enterprises within the Pukou District.
Moody's believes Nanjing Pukou's high level of financial risk is partly
mitigated by the fact that the majority of its debt associated with government-related
projects is supported by (1) periodic capital injections from the government,
and 2) revenue from land sales, albeit lumpy and volatile.
Nanjing Pukou's liquidity profile is weak. Its cash and cash equivalents
of around RMB8.7 billion at the end of June 2019 are insufficient
to cover the RMB7-8 billion in planned investments and RMB9.4
billion in debt maturing over the next 12 months. However,
the associated risks are somewhat mitigated by the company's good
access to domestic funding channels, including bank loans and the
public bond market, given its status as a key state-owned
enterprise in the Pukou District.
The rating also takes into consideration Nanjing Pukou's low predictability
on its project mandates and limited information transparency on its investment
strategy and financial policy, partly mitigated by its full ownership,
supervision and close monitoring by the government.
The stable ratings outlook reflects (1) the stable outlook on China's
A1 sovereign rating; and (2) Moody's expectation that Nanjing Pukou
will continue to receive strong and recurring government support.
Moody's could upgrade the ratings if (1) the likelihood of government
support for Nanjing Pukou increases; and/or (2) Nanjing Pukou's BCA
further improves.
Nanjing Pukou's BCA could be upgraded if the company's business or financial
profile improves, with more stable and predictable government cash
payments.
Credit metrics indicative of upward pressure on its BCA include:
1) a significant decrease in its adjusted debt, or 2) adjusted debt/capitalization
falling below 60% on a sustained basis; or (3) adjusted (funds
from operations [FFO] from nongovernment transactions + government
cash payments + interest)/interest exceeding 2.5x on a sustained
basis.
Moody's could downgrade the ratings if (1) the likelihood of government
support for Nanjing Pukou decreases; and/or (2) Nanjing Pukou 's
BCA deteriorates.
Moody's could lower Nanjing Pukou's BCA if there is a material deterioration
in its business or financial profile, for example in the case of
lower-than-expected government cash payments or higher-than-expected
investment needs.
Credit metrics indicative of a downward pressure on its BCA include:
1) adjusted debt/capitalization rising above 75% for a prolonged
period; or 2) adjusted (FFO from non-government transactions
+ government cash payments + interest)/interest falling below
1.2x for a prolonged period.
In addition, Moody's could downgrade the BCA if the company
is unable to wind down its external guaranteed debt.
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.
Nanjing Pukou Economic Development Co., Ltd. is 100%
owned by the Pukou District Government, Nanjing City, Jiangsu
Province.
The company is mandated by the Pukou District Government to develop and
operate the Nanjing Pukou Economic Development Zone, including infrastructure
construction and primary land development.
As at the end of 2018, the company reported assets of RMB60 billion
and revenue of RMB1.4 billion.
The local market analyst for these ratings is Yuting Liu, +86
(10) 6319 6530.
REGULATORY DISCLOSURES
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
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issued on a support provider, this announcement provides certain
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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
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support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
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The first name below is the lead rating analyst for this Credit Rating
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this Credit Rating.
Ying Wang
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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China (Hong Kong S.A.R.)
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Gary Lau
MD - Corporate Finance
Corporate Finance Group
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Client Service: 852 3551 3077
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Moody's Investors Service Hong Kong Ltd.
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