Hong Kong, November 22, 2018 -- Moody's Investors Service has assigned a first-time Baa3 issuer
rating to Zhuji State-owned Assets Management Co.,
Ltd.
The rating outlook is stable.
RATINGS RATIONALE
Zhuji's Baa3 rating primarily combines: (1) its ba3 baseline credit
assessment (BCA); and (2) Moody's assessment of the strong likelihood
of support that the company would receive from and high level of dependence
on the Government of China (A1 stable) in times of need, which results
in a rating that is three notches above Zhuji's BCA.
Moody's assessment of a strong level of support reflects Zhuji's
close linkage with and its ultimate 100% ownership by the Zhuji
government, its important role in holding around 75% of the
Zhuji government's state-owned operational assets,
and the company's track record of receiving government support,
including in excess of RMB20 billion in government grants and cash injections
between 2015 and 2017.
While the Zhuji government is a county-level government in Zhejiang
Province, it enjoys a similar level of authority as prefecture-level
governments in terms of social and economic development, and administrative
and fiscal management.
As such, Moody's believes the central government would support efforts
by the Zhuji government and the Zhejiang government to prevent Zhuji from
defaulting and 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 Zhuji and the central
government are exposed to common political and economic event risks.
Zhuji's BCA is driven by its diversified business profile, which
consolidates the majority of Zhuji city's state-owned operating
assets, monopoly position in various public services, and
its strong access to domestic funding.
On the other hand, Zhuji's BCA is constrained by its high
debt leverage, due in turn to its sizable investment plan in infrastructure
development and affordable housing construction over the next 2-
3 years of around RMB4-RMB5 billion per year.
Nevertheless, Moody's believes Zhuji's high financial
leverage is partly mitigated by the fact that the majority of the debt
associated with its public welfare projects and commercial public projects
is supported by: (1) periodic cash flow from the Zhuji government
in the form of capital injections and the buyback of infrastructure projects;
and (2) the recurring subsidies from government revenue through land sales.
Zhuji's funds from operations (FFO) coverage has historically been
high — as measured by (FFO from non-government transactions
+ government cash payments + interest)/interest — due
to its receipt of large government capital grants from land sales.
Because land sales are a volatile source of government revenue,
Zhuji received more than two times the amount in government cash injections
in 2017 than it did in 2015. Specifically, such injections
totaled RMB2.8 billion in 2015, RMB3.7 billion in
2016 and RMB6.7 billion in 2017.
Moody's projects that Zhuji's land sales capital grant will
fall to around RMB3 billion per annum between 2018 and 2020. As
such, FFO coverage will weaken from a high of 5.8x in 2017
to a normalized level of 3.0x during 2018-2019; a situation
which will support its BCA of ba3.
Zhuji's liquidity profile is modest. Its cash balance of RMB10
billion at 30 June 2018 is insufficient to cover the RMB6.3 billion
in short-term debt outstanding and projected capital expenditure
of RMB4-RMB5 billion over the next 12 months. Nonetheless,
the company has good access to domestic funding channels, including
bank loans and the public bond market, because of its strong direct
linkage to the Zhuji government and indirectly to the Zhejiang government.
The stable rating outlook reflects: (1) the stable outlook on China's
sovereign rating; and (2) the consideration that Zhuji's BCA is appropriately
positioned at the current level.
Moody's could upgrade the rating if: (1) the likelihood of
support from the central government to Zhuji increases, and/or (2)
Zhuji's standalone credit profile improves significantly.
Moody's could raise Zhuji's BCA if the company's business or financial
profile improves. Credit metrics indicative of upward pressure
on its BCA include adjusted (FFO from non-government transactions
+ government cash payments + interest)/interest exceeding 3.5x
on a sustained basis.
Moody's could downgrade the rating if: (1) the likelihood
of support for Zhuji from the central government decreases, and/or
(2) Zhuji's standalone credit profile weakens meaningfully.
Moody's could lower Zhuji's BCA if its business or financial profiles
deteriorate materially. Credit metrics indicative of a potential
downgrade of the BCA include adjusted (FFO from non-government
transactions + government cash payments + interest)/interest
below 2.0x on a sustained basis.
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.
Zhuji State-owned Assets Management Co., Ltd.
is 100%-owned and directly supervised by the State-Owned
Assets Supervision and Administration Commission of the Zhuji City Government
(Zhuji SASAC).
As the largest platform of the Zhuji SASAC, the company consolidates
75% of the Zhuji government's major state-owned operational
assets, including urban infrastructure construction, affordable
housing development, water services, and public transportation.
At the end of 2017, Zhuji reported revenue of RMB3.3 billion,
with total assets of RMB105 billion.
The local market analyst for these ratings is Yuting Liu, +86
(106) 319-6530.
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
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
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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.)
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
