Hong Kong, December 18, 2017 -- Moody's Investors Service has assigned a first-time Baa3 issuer
rating to Jiaxing City Investment and Development Group Co.,
Ltd. (JCD).
At the same time, Moody's has assigned a Baa3 senior unsecured rating
to the proposed bond to be issued by JCD.
The rating outlook is stable.
Proceeds from the proposed issuance will be used for refinancing certain
indebtedness and general corporate purposes.
RATINGS RATIONALE
"JCD's issuer rating of Baa3 reflects its close linkage to
the Jiaxing city government, given its strategic and monopolistic
role in executing public welfare projects in the city," says
Franco Leung, a Moody's Vice President and Senior Credit Officer,
and also the International Lead Analyst for JCD.
"We expect that the Jiaxing government will provide a high level
of support to the company, as demonstrated by its provision of recurring
financial support, particularly given that the contractual payments
for JCD's shantytown renovation program are ultimately linked to
the city's budget," adds Cindy Yang, a Moody's
Assistant Vice President and Analyst, and also the Local Market
Analyst for JCD.
"The city's own strategic importance to Zhejiang Province
is reinforced by its recent receipt of the mandate to set up the Zhejiang-Shanghai
Integrated Demonstration Zone, the first of its kind,"
says Yang. "We believe JCD -- as a major commercial
public sector entity of the Jiaxing government -- is likely
to receive extraordinary support from the city and aid from the Zhejiang
provincial government, if necessary."
JCD's Baa3 issuer rating combines a baseline credit assessment (BCA)
of b1 and a four-notch uplift, based on the high level of
support expected from the Jiaxing government.
The Jiaxing government has mandated the company to execute the city's
development plans and to provide various public and utility services.
Its strategic importance is further highlighted by its new role of implementing
since 2017 the shantytown renovation program in the core areas of Jiaxing
city. The program is part of a national initiative to support urbanization
and economic development.
The city government has a track record of providing financial support
to fund JCD's debt servicing, capital spending and operating
subsidies. In particular, JCD's shantytown renovation
project operates under a government procurement model.
The contractual payments received by JCD are approved and linked to the
government's annual budget. Government payments are generally
settled in advance and prefunding requirements for JCD are limited.
Moody's believes that the Jiaxing government has adequate fiscal
strength to provide support to JCD and with potential aid from the Zhejiang
provincial government, if necessary.
The Jiaxing government has close ties with its upper tier government,
the Zhejiang provincial government. Jiaxing city ranked fifth in
terms of GDP per capita among all the cities in Zhejiang Province in 2016.
Jiaxing was designated as the pilot city for the execution of strategic
provincial initiatives in April 2017, including the establishment
of the Zhejiang-Shanghai Integrated Demonstration Zone.
The zone is the first of its kind and is designed to deepen integration
between the two regions of Zhejiang and Shanghai.
The company's BCA of b1 reflects its weak financial profile and modest
liquidity, due to its large capital spending and working capital
requirements relative to its modest earnings.
Moody's estimates that projected funds from operations (FFO)/interest
coverage will weaken to 1.4x-1.6x and debt/EBITDA
will stay high at 16x-18x over next two years. These metrics
will slightly improve if we consider recurring government payments.
JCD's stable rating outlook incorporates our expectation that over the
next 12-18 months: (1) the company's credit metrics
will remain at levels appropriate for its b1 BCA; and (2) its importance
to the Jiaxing and Zhejiang provincial governments will remain intact.
JCD's issuer rating could be upgraded if the support from both governments
strengthens and, at the same time, its BCA improves.
Positive pressure on JCD's BCA could arise if the company's credit profile
improves materially, such that FFO/interest coverage (after consideration
of government payments and subsidies) remains above 2.5x on a sustained
basis.
On the other hand, JCD's issuer rating could be downgraded
if its BCA or support from the Jiaxing city and Zhejiang provincial governments
weakens.
Its BCA could be downgraded if (1) its policy functions show material
weaknesses, (2) its business model becomes less predictable with
increasing levels of commercial activities, (3) adverse changes
occur in the policy framework for local government financing vehicles,
and (4) a deviation occurs from our expectations on the rationalization
of JCD's ownership in 2019.
Financial indicators for a downgrade could include the company's FFO/interest
coverage (after consideration of government payments and subsidies) remaining
below 1.2x 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 August 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
Jiaxing City Investment and Development Group Co., Ltd.
is a local government financing vehicle ultimately owned by the Jiaxing
city government. It primarily manages and finances city infrastructure
projects, as well as providing other public and utility services
in Jiaxing City. The company reported total revenue of RMB1.8
billion in 2016 and total assets of RMB23.0 billion at the end
of 2016.
The Local Market analyst for this rating is Cindy Yang, +86
(10) 6319-6570.
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.
Franco Leung
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
