Hong Kong, March 31, 2020 -- Moody's Investors Service has today changed to negative from stable
the rating outlooks on seven toll road companies and their rated subsidiaries
in China.
At the same time, Moody's has affirmed
- Anhui Transportation Holding Group Co., Ltd.'s
Baa1 issuer rating
- Anhui Transportation Holding Group (H.K.) Ltd's
Baa1 senior unsecured rating
- Guangxi Communications Investment Grp Co.,Ltd's
Baa2 issuer rating and senior unsecured rating
- Guangzhou Communications Investment Group's Baa2 issuer
rating
- Qilu Transportation Development Group Co., Ltd.'s
A3 issuer rating
- Shandong Hi-speed Group Co., Ltd's
A3 issuer rating
- Shenzhen Expressway Company Limited's Baa2 issuer rating
and senior unsecured rating
- Shenzhen International Holdings Limited's Baa2 issuer rating
and senior unsecured rating
A list of all affected ratings and assessments is provided at the end
of this press release.
RATINGS RATIONALE
"The change in outlook to negative for these toll road operators
reflects our expectation that their operating and financial performance
in 2020 will be weaker than what we had previously expected, due
to the coronavirus outbreak," says Ralph Ng, a Moody's
Assistant Vice President and Analyst.
"We expect that traffic volumes may weaken this year, as China's
economy slows materially amid the impact of the coronavirus outbreak globally,"
Ng adds.
More specifically, stringent traffic controls and containment measures
imposed by the Chinese government have caused disruption to goods transport
and passenger commute since January and may result in a drop in national
traffic volumes in 2020. While Moody's assumes a gradual
recovery in traffic volume in the second half of 2020, weakening
economic conditions in China cast uncertainty around the pace of recovery
even after travel restrictions are lifted.
"In addition, until the toll-free policy announced
in February is ended, it will continue to dent operators'
revenue and strain their credit metrics in 2020, in the absence
of government compensation," adds Ng.
On 15 February 2020, China's Ministry of Transport announced a temporary
toll-free policy [1] for all toll roads and bridges in China
as part of efforts to support the resumption of operations across various
sectors following the coronavirus outbreak. The regulator did not
specify a time frame as to when the policy will end. While Moody's
expects the policy will be removed before the second half of 2020,
the credit profile of operators will remain under pressure, especially
if they do not receive cash compensation to offset the impact of the policy.
The rapid and widening spread globally of the coronavirus outbreak,
deteriorating Chinese and global economic outlook, falling oil prices,
and asset price declines are creating a severe and extensive credit shock
across many sectors, regions and markets. The combined credit
effects of these developments are unprecedented. The Chinese toll
road sector has been one of the sectors most significantly affected by
the shock given its sensitivity to consumer demand and sentiment.
Moody's regards the coronavirus outbreak as a social risk under
its ESG framework, given the substantial implications for public
health and safety.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Anhui Transportation Holding Group Co., Ltd.
The negative outlook on Anhui Transportation Holding Group Co.,
Ltd. (Baa1 negative) reflects Moody's expectation that its credit
metrics will deteriorate because of reduced toll volume and revenue over
the next 12-18 months.
An upgrade is unlikely in the near term, given the negative outlook.
The outlook could return to stable if (1) Anhui Transportation's
standalone credit profile stabilizes, underpinned by a recovery
in traffic volumes on a sustained basis, (2) the toll free policy
is completely withdrawn, and (3) government support remains strong.
The ratings could be downgraded if (1) the likelihood of government support
for Anhui Transportation decreases or (2) the company's BCA weakens
meaningfully with no signs of a recovery in traffic volumes.
The rating could also be downgraded if Anhui Transportation (1) takes
on even significantly more debt-funded capital spending,
or (2) develops a substantially weaker credit profile.
Credit metrics indicative of a downward of the company's BCA include adjusted
FFO/debt remaining below 1% on a sustained basis.
Guangxi Communications Investment Grp Co.,Ltd
The negative outlook on Guangxi Communications Investment Group Corporation
Ltd (GXCI, Baa2 negative) reflects Moody's expectation that GXCI's
credit metrics will deteriorate because of reduced toll volume and revenue
over the next 12-18 months.
Rating upgrade is unlikely in the near term, given the negative
outlook. The outlook could return to stable if (1) GXCI's
standalone credit profile is stabilized underpinned by a recovery of traffic
volume on sustained basis, (2) the toll-free policy is completely
withdrawn, and (3) government support remains strong.
GXCI's ratings could be downgraded if (1) the likelihood of support for
GXCI decreases, or (2) GXCI's BCA weakens meaningfully and there
is no sign of recovery of traffic volume.
GXCI's BCA could be lowered if there is a material deterioration in its
business or financial profile, for example, GXCI (1) takes
on even more aggressive debt-funded capital spending, including
railway investments or other state-owned assets with weaker financial
profile in Guangxi province; (2) fails to secure ongoing support
from the Guangxi provincial and central governments; or (3) develops
a substantially weaker credit profile, including possibly due to
weakened toll road traffic volumes; or (4) experiences adverse changes
in the regulatory or economic environment.
Credit metrics indicative of downward pressure on the company's BCA include
FFO interest coverage, including grants, below 1.1x
on a sustained basis.
Guangzhou Communications Investment Group
The negative outlook on Guangzhou Communications Investment Group (GZCI,
Baa2 negative) reflects Moody's expectation that GZCI's credit metrics
will deteriorate because of reduced toll volume and revenue over the next
12-18 months.
An upgrade is unlikely in the near term, given the negative outlook.
The outlook could return to stable if (1) GZCI 's standalone credit
profile stabilizes, underpinned by a recovery in traffic volumes
on a sustained basis; (2) the toll-free policy is completely
withdrawn; and (3) government support remains strong.
The ratings could be downgraded if (1) the likelihood of support for GZCI
decreases or (2) GZCI's standalone credit profile weakens meaningfully
and with no signs of a recovery in traffic volumes.
The ratings could also be downgraded if (1) GZCI is unable to obtain sufficient
external funding to refinance its debt and support its expansion;
(2) the company fails to secure ongoing support from the Guangzhou government;
(3) there is a material change in the economic environment in Guangzhou,
leading to lower toll road traffic volumes; or (4) there are adverse
changes in the regulatory environment.
The metrics that Moody's would consider for a downgrade of its BCA
include funds from operations interest coverage, after taking into
consideration recurring government grants and subsidies, falling
below 1.0x on a sustained basis.
Qilu Transportation Development Group Co., Ltd.
The negative outlook on Qilu Transportation Development Group Co.,
Ltd. (QLTD, A3 negative) reflects Moody's expectation that
its credit metrics will deteriorate because of reduced toll volume and
revenue over the next 12-18 months.
An upgrade is unlikely in the near term, given the negative outlook.
The outlook could return to stable if (1) QLTD's standalone credit
profile stabilizes, underpinned by a recovery in traffic volumes
on a sustained basis, (2) the toll-free policy is completely
withdrawn, and (3) government support remains strong.
The ratings could be downgraded if (1) the likelihood of support for QLTD
decreases, or (2) the company's BCA weakens meaningfully with
no signs of a recovery in traffic volumes.
Moody's could also downgrade the ratings if QLTD (1) takes on more
aggressive debt-funded capital spending, or (2) is unable
to control risks associated with its non-toll road businesses.
Credit metrics indicative of a downward of the company's BCA include adjusted
FFO/debt falling below 5% and FFO interest coverage falling below
1.5x, after considering government fiscal support,
on a sustained basis.
Shandong Hi-speed Group Co., Ltd
The negative outlook on Shandong Hi-speed Group Co.,
Ltd (SDHS, A3 negative) reflects Moody's expectation that SDHS's
credit metrics will deteriorate because of reduced toll volume and revenue
over the next 12-18 months.
An upgrade is unlikely in the near term, given the negative outlook.
The outlook could return to stable if (1) SDHS's standalone credit
profile stabilizes, underpinned by a recovery in traffic volumes
on a sustained basis, (2) the toll-free policy is completely
withdrawn, and (3) government support remains strong.
The ratings could be downgraded if (1) the likelihood of support for SDHS
decreases, or (2) the company's BCA weakens meaningfully with
no signs of a recovery in traffic volumes.
Moody's could also downgrade the ratings if SDHS (1) takes on more
aggressive debt-funded capital spending, or (2) is unable
to control risks associated with its non-toll road businesses.
Credit metrics indicative of a downward of the company's BCA include adjusted
FFO/debt falling below 1% on a sustained basis, primarily
driven by its non-financial business segments.
Shenzhen Expressway Company Limited
The negative outlook on Shenzhen Expressway Company Limited (SZEC,
Baa2 negative) reflects its weakened operating performance, as well
as the negative rating outlook of its parent company, Shenzhen International
Holdings Limited (Baa2 negative).
An upgrade is unlikely in the near term, given the negative outlook.
The outlook could return to stable if (1) SZEC's standalone credit
profile stabilizes, underpinned by a recovery in traffic volumes
on a sustained basis; and (2) the toll-free policy is completely
withdrawn.
Moody's could downgrade the rating if (1) SZEC's FFO/debt drops
below 15% and cash interest coverage remains below 2.0x
on a sustained basis; and (2) contributions from non-toll-road
businesses exceed 35%-40% of total assets on a sustained
basis.
A downgrade of the rating of its parent, SZIH, could also
lead to the downgrade of SZEC's rating.
Shenzhen International Holdings Limited
The negative outlook on Shenzhen International Holdings Limited (SZIH's
Baa2 negative) reflects its weak credit metrics due to the deteriorated
operating performance of its toll road operations and sizable capital
expenditure plan over the next 12-18 months.
An upgrade is unlikely in the near term, given the negative outlook.
The outlook could return to stable if (1) SZIH 's standalone credit
profile stabilizes, underpinned by a recovery in traffic volumes
and improving credit metrics on a sustainable basis; and (2) the
toll-free policy is completely withdrawn; and (3) government
pass-through support remains strong.
SZIH's issuer rating could be downgraded if Moody's believes
that the support from its parent company has weakened or if the company's
standalone credit profile deteriorates.
A deterioration in SZIH's standalone credit profile could occur
as a result of (1) a material change in the macroeconomic environment
in Shenzhen; (2) adverse policy changes by the government that hurt
the company's business or financial risk profile; (3) heavily debt-funded
acquisitions and investments, or a shift away from SZIH's
core infrastructure activities; or (4) a deterioration in the company's
financial metrics, with FFO/debt falling below the low teens in
percentage terms and FFO/interest cover dropping below 3.0x,
without a significant cash buffer.
The principal methodologies used in rating Anhui Transportation Holding
Group Co., Ltd., Anhui Transportation Holding
Group (H.K.) Ltd, Guangxi Communications Investment
Grp Co.,Ltd, Guangzhou Communications Investment Group,
Qilu Transportation Development Group Co., Ltd.,
and Shandong Hi-speed Group Co., Ltd were Publicly
Managed Toll Roads and Parking Facilities published in March 2019 and
available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091602,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
The principal methodology used in rating Shenzhen International Holdings
Limited, and Shenzhen Expressway Company Limited was Privately Managed
Toll Roads published in October 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1096736.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
The local market analyst for Anhui Transportation Holding Group Co.,
Ltd., Anhui Transportation Holding Group (H.K.)
Ltd, and Qilu Transportation Development Group Co.,
Ltd.'s ratings is Qingqing Guo, +86 (212) 057-4093.
LIST OF AFFECTED RATINGS
Anhui Transportation Holding Group Co., Ltd. (Lead
Analyst: Boris Kan)
....Long-term Issuer Rating (Foreign
and Local Currency), Affirmed Baa1
....Outlook, Changed To Negative From
Stable
Anhui Transportation Holding Group (H.K.) Ltd (Lead Analyst:
Boris Kan)
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed Baa1
....Outlook, Changed To Negative From
Stable
Guangxi Communications Investment Grp Co.,Ltd (Lead Analyst:
Boris Kan)
....Long-term Issuer Rating (Foreign
and Local Currency), Affirmed Baa2
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed Baa2
....Outlook, Changed To Negative From
Stable
Guangzhou Communications Investment Group (Lead Analyst: Ralph Ng)
....Long-term Issuer Rating (Foreign
and Local Currency), Affirmed Baa2
....Outlook, Changed To Negative From
Stable
Qilu Transportation Development Group Co., Ltd. (Lead
Analyst: Ada Li)
....Long-term Issuer Rating (Foreign
Currency), Affirmed A3
....Outlook, Changed To Negative From
Stable
Shandong Hi-speed Group Co., Ltd (Lead Analyst:
Ada Li)
....Long-term Issuer Rating (Foreign
Currency), Affirmed A3
....Outlook, Changed To Negative From
Stable
Shenzhen International Holdings Limited (Lead Analyst: Ivy Poon)
....Long-term Issuer Rating (Foreign
Currency), Affirmed Baa2
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed Baa2
....Outlook, Changed To Negative From
Stable
Shenzhen Expressway Company Limited (Lead Analyst: Ivy Poon)
....Long-term Issuer Rating (Foreign
Currency), Affirmed Baa2
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed Baa2
....Outlook, Changed To Negative From
Stable
REGULATORY DISCLOSURES
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sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
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REFERENCES/CITATIONS
[1] Toll Free Announcement, Ministry of Transport, 15
February 2020
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.
Ralph Ng
Asst Vice President - Analyst
Project & Infrastructure Finance
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MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
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