Hong Kong, September 12, 2018 -- Moody's Investors Service has today downgraded the ratings of five
Chinese non-financial corporate and infrastructure government-related
issuers (GRIs) owned by regional and local governments (RLGs).
These rating actions reflect Moody's updated view on the likelihood
of support for RLG GRIs in light of the ongoing efforts of the Chinese
government (A1 stable) to limit the ways in which support can be provided
to them by the RLG owners or other entities.
The following ratings are affected:
1. The Issuer Rating and senior unsecured bonds issued by Nanjing
Yangzi State-Owned Assets Investment Group Co., Ltd
(Nanjing Yanzi) were downgraded to Baa2 from Baa1.
2. The Issuer Rating of Tianjin Binhai New Area Construction &
Investment Group Co Ltd (TBCI), and backed senior unsecured bonds
issued by Zhaohai Investment (BVI) Limited and guaranteed by TBCI were
downgraded to Baa2 from Baa1.
3. The Issuer Rating of Tianjin Free Trade Zone Investment Holding
Group Co., Ltd. (Tianjin FTZ), and backed senior
unsecured bonds issued by Hongkong Baorong Development Limited and guaranteed
by Tianjin FTZ were downgraded to Baa3 from Baa2.
4. The Issuer Rating of Hubei Science & Technology Investment
Group Co., Ltd. (HSTIG), and backed senior unsecured
bonds issued by Hubei Science & Technology Investment Group (HK) Co.
Ltd. (HK HSTIG) and guaranteed by HSTIG were downgraded to Baa3
from Baa2.
5. The senior unsecured bonds of Zhuzhou City Construction Development
Group Co., Ltd. (ZCCD) were downgraded to Ba1 from
Baa3. Moody's has also withdrawn ZCCD's Baa3 Issuer
Rating and assigned a Ba1 Corporate Family Rating.
The outlook on all ratings is stable.
At the same time, Moody's has upgraded TBCI's baseline
credit assessment (BCA) to b1 from b2. The BCAs of Nanjing Yangzi,
Tianjin FTZ and ZCCD remain unchanged at b1, and HSTIG's BCA
remains unchanged at ba3.
RATINGS RATIONALE
LIKELIHOOD OF SUPPORT IS REDUCING BUT REMAINS MATERIAL
The central government has issued a series of policy statements over the
past two years — the latest in March 2018 — aimed at limiting
the ways in which support can be provided to GRIs owned by RLGs.
These policy initiatives have reinforced the close oversight of this sector
by the central government, its desire to reduce leverage in the
sector and contingent liabilities of RLGs, and its strong focus
on reducing moral hazard over time. As a result, Moody's
sees a reduced likelihood of support for the sector as a whole.
At the same time, Moody's says the likelihood of support continues
to be a material consideration in its assessment of the credit quality
of the more important GRIs, given the importance of issuers in this
sector for the national economy, especially in the implementation
of national policies and objectives.
In addition, the sector poses systemic risks, given its large
amount of debt outstanding, and which implies that the central government
is unlikely to allow large and important GRIs to default.
This situation supports Moody's view that, while the likelihood
of support is reducing, it nevertheless remains an important component
of credit quality for the larger, higher profile GRIs, owned
by the most important RLGs.
CENTRAL GOVERNMENT RATING IS A BETTER INDICATOR FOR ASSESSING SUPPORT
In addition, Moody's now believes that the A1 China central
government rating is a better indicator for assessing support, rather
than the RLGs' own credit profiles.
Policy announcements from the central government clearly demonstrate that
it controls the decision-making process around support for RLG-owned
GRIs.
Furthermore, the central government controls the likelihood of support
occurring in any material way, given the centrally planned nature
of the Chinese economy. This support can take various forms,
including government subsidies, capital or asset injections,
and loans from policy as well as state-owned banks.
As such, Moody's believes the rating of the central government
is a better indicator for the credit strength underlying any support that
might be forthcoming and that the most important considerations in assessing
the likelihood of support are the importance of a given GRI to national
and regional policy objectives and the priorities set by the central government.
RLG OWNERSHIP AND GRI ACTIVITY STILL DRIVE SUPPORT ASSESSMENT
As stated, Moody's opinion is that larger GRIs carrying out
activities important to national priorities and owned by the most important
RLGs are more likely to receive support. These entities are more
likely to be carrying out higher profile national public policies,
such as those linked to social welfare or national economic development,
and constitute large issuers of debt in the domestic markets.
As such, a failure by one of these entities would risk a broader
systemic problem in the debt markets, which could also materially
impact economic activity. On the other hand, entities carrying
out more commercial activities, and which constitute a smaller size
and with less debt outstanding, and/or owned by lower level RLGs
are less likely to receive support.
STANDALONE CREDIT PROFILES IMPROVING FOR SOME GRIS, LIMITING RATING
IMPACT
Policies aimed at reducing leverage in the RLG GRI sector have motivated
RLG owners to take actions to improve the standalone credit profiles (i.e.
BCAs) of some GRIs. These actions include using RLG bonds for debt
swap programs, establishing mechanisms with greater predictability
in respect of government subsidies and payments and injecting cash generating
assets to these GRIs. As a result, for some GRIs, Moody's
sees improving BCAs balancing some of the impact of reduced expectations
of support.
DETAILS OF RATING ACTIONS
Moody's has lowered its expectation of support to "High"
from "Very High" for Nanjing Yangzi, TBCI and Tianjin
FTZ. These companies have limited direct central government oversight,
but are focused on the regional implementation of national priorities
for important public welfare activities, such as shantytown renovation
programs or the development of national economic zones.
Moody's has also lowered its expectation of support to "Strong"
from "High" for HSTIG and ZCCD. HSTIG's primary
activities are focused on the regional implementation of national priorities,
but its core activity — the development of high technology zone
— is less prominent and less economically significant than public
welfare activities or national economic zones of the above three entities.
Similarly, for ZCCD, its primary activities are city construction
and the provision of public services, which are regionally focused
and lack a strong linkage to national priorities.
Moody's has also upgraded the BCA of TBCI to b1 from b2 and has
left the BCAs of the other four companies unchanged. However,
the BCAs are insufficient to mitigate the lower expectation of support
for Moody's rating assessment, which includes joint default
analysis.
Moody's has upgraded TBCI's BCA to b1 from b2, reflecting
its improved credit profile from deleveraging. TBCI's adjusted
debt fell to RMB94.8 billion at the end of 2017 from RMB103.3
billion at the end of 2015.
Moody's has also lowered its assessment of dependence for the five
companies from "Very High" to "High", given
their less direct financial linkages to the central government —compared
with their RLG owners — but this change in dependence has no impact
on their ratings.
The stable outlooks for the five local GRIs reflect: (1) the stable
outlook on the sovereign rating, and (2) the consideration that
these companies' BCAs remain appropriately positioned at their current
levels.
The ratings for these five GRIs could be upgraded if: (1) Moody's
view of the likelihood of support for them increases; and/or (2)
their BCAs improve significantly.
The ratings for these GRIs could be downgraded if: (1) Moody's
view of the likelihood of support for them decreases and/or (2) their
BCAs weaken meaningfully.
The principal methodologies used in rating Hubei Science & Technology
Investment Group Co., Ltd., Hubei Science &
Technology Investment Group (HK) Co. Ltd., Nanjing
Yangzi State-Owned Assets Investment Group Co., Ltd,
Tianjin Binhai New Area Construction & Investment Group Co Ltd,
Zhaohai Investment (BVI) Limited, Tianjin Free Trade Zone Investment
Holding Group Co., Ltd. and Hongkong Baorong Development
Limited were Business and Consumer Service Industry published in October
2016, and Government-Related Issuers published in June 2018.
The principal methodologies used in rating Zhuzhou City Construction Development
Group Co., Ltd. were Regulated Water Utilities published
in June 2018, and Government-Related Issuers published in
June 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
The local market analyst for Hubei Science & Technology Investment
Group Co., Ltd., Hubei Science & Technology
Investment Group (HK) Co. Ltd., Nanjing Yangzi State-Owned
Assets Investment Group Co., Ltd, Tianjin Binhai New
Area Construction & Investment Group Co Ltd, Zhaohai Investment
(BVI) Limited, Tianjin Free Trade Zone Investment Holding Group
Co., Ltd. and Hongkong Baorong Development Limited
ratings is Cindy Yang, +86 (106) 3196570 .
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.
With reference to the withdrawal of the rating of Zhuzhou City Construction
Development Group Co., Ltd.: The rating has
been disclosed to the rated entity or its designated agent(s) and issued
with no amendment resulting from that disclosure.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entities are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
ratings process. Please refer to www.moodys.com for
the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
The person who approved Nanjing Yangzi State-Owned Assets Investment
Group Co., Ltd, Tianjin Binhai New Area Construction
& Investment Group Co Ltd, Zhaohai Investment (BVI) Limited,
Tianjin Free Trade Zone Investment Holding Group Co., Ltd.,
Hongkong Baorong Development Limited, Hubei Science & Technology
Investment Group Co., Ltd. and Hubei Science &
Technology Investment Group (HK) Co. Ltd.'s credit ratings
is Gary Lau, Managing Director, Corporate Finance Group,
852 3758 1350, 852 3551 3077. The person who approved Zhuzhou
City Construction Development Group Co., Ltd.'s credit
ratings is Terry Fanous, Managing Director, Project &
Infrastructure Finance Group, 852 3758 1350, 852 3551 3077.
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.
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
