Hong Kong, June 06, 2019 -- Moody's Investors Service has assigned a first-time Baa3 issuer
rating to Beijing Future Science Park Development Group Co.,
Ltd (BFSP).
The rating outlook is stable.
RATINGS RATIONALE
BFSP's Baa3 issuer rating primarily combines (1) its ba3 Baseline Credit
Assessment (BCA); and (2) Moody's assessment of a strong likelihood
of support 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 its BCA.
Moody's assessment of strong government support reflects BFSP's
leading role in investing, developing and operating Beijing Future
Science Park, its direct 76.79% ownership by the Changping
district government under Beijing city, and track record of receiving
government support in the form of land development income, operating
subsidies, fund allocations and capital injections.
BFSP is mandated by the Changping district government to develop and operate
Beijing Future Science Park, mainly through primary land development
and infrastructure construction. The company is also engaged in
the development of policy-driven property, such as affordable
housing, talent apartments, resettlement housing, as
well as commercial property.
In 2017, Beijing Future Science Park was made part of the initiative
known as "Three Cities and One Area" by the Beijing city government
to strengthen the status of Beijing city as a national innovation center.
The development of Beijing Future Science Park is important not only for
the Changping district government, but also for the Beijing city
government. According to the company, it has received a total
RMB8.4 billion in financial support directly from the Beijing city
government since its establishment in 2009.
As such, Moody's believes the central government would support
efforts by the Changping district government and the Beijing city government
to prevent BFSP from defaulting, thereby avoiding disruption to
the domestic financial markets. 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 BFSP and the central
government are exposed to common political and economic event risks.
BFSP's BCA of ba3 is underpinned by the limited business risk that the
company faces, due to its monopoly market position in relation to
Beijing Future Science Park, the synergy between its primary land
development and commercial property development, and its good access
to domestic funding.
When compared to industrial peers operating in a commercially competitive
environment, BFSP faces relatively low business risk, due
to its monopoly market position in the Beijing Future Science Park project,
as well as its role in implementing the government's policy mandate.
Additionally, through collaboration with the government on primary
land development, the company has obtained some land plots at competitive
costs, which will support its high gross margin for the commercial
property projects and compensate for losses associated with some policy-driven
property projects.
BFSP also has good access to domestic funding, as evidenced by its
multiple onshore banking relationships and track record of tapping the
onshore debt capital markets.
Nevertheless, BFSP's BCA is constrained by its high geographic
concentration in Beijing Future Science Park, exposure to the volatile
land and property markets, and increased debt leverage.
Currently, the major revenue contributor to BFSP is primary land
development. Revenue from such projects is volatile because of
the uncertainty in the government's land sales schedule and land
prices, which are subject to market conditions.
BFSP expects that the revenue contribution from its property development
business will grow fast over the next 2-3 years, but the
commercial property projects are also subject to the regulatory measures
on home purchases and mortgages.
In 2018, BFSP's total adjusted debt increased significantly
by RMB22.5 billion, representing year-on-year
growth of 115%. The significant rise was mainly due to the
investment in primary land development and the settlement of land costs
for its property development business.
Moody's expects that BFSP will moderately deleverage from the peak,
using future sales proceeds from primary land and property developments.
The expected allocation from special-purpose government bonds issued
by the Beijing city government for primary land and shantytown projects
can also alleviate the company's funding pressure.
Moody's estimates that BFSP's adjusted debt will fall to RMB40
billion by the end of 2021 from around RMB42 billion at the end of 2018.
Accordingly, its adjusted debt/book capitalization will trend down
to 66% from 70% over the same period. The company's
(adjusted funds from operation (FFO) from non-government transactions
+ government cash payments + interest)/interest will stay at
an average of 2.0x-3.0x over the next 2-3
years.
The stable rating outlook reflects (1) the stable outlook on China's
A1 sovereign rating; and (2) the consideration that BFSP's BCA is
appropriately positioned at the current level.
Moody's could upgrade BFSP's rating if (1) the likelihood
of government support increases; or (2) the company's BCA improves.
Moody's could raise BFSP'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 4.0x
on a sustained basis.
Moody's could downgrade the rating if (1) the likelihood of government
support for BFSP decreases; or (2) BFSP's BCA weakens.
Moody's could lower BFSP'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 1.8x-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.
Established in 2009, Beijing Future Science Park Development Group
Co., Ltd was 76.79% directly owed by the Changping
district government under Beijing city at the end of May 2019.
The company is mandated with the development of Beijing Future Science
Park, with its main business activities including primary land development,
infrastructure construction, property development and the provision
of maintenance and other services for the project.
The local market analyst for these ratings 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.
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when it maintains an overall relationship with Moody's. Unless
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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
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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
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China (Hong Kong S.A.R.)
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