Hong Kong, September 03, 2020 -- Moody's Investors Service has placed Binhai Investment Company Limited's
Ba1 corporate family rating on review for downgrade. The previous
outlook on the company was stable.
The rating action reflects Moody's consideration on the company's
governance risk around financial policy, specifically the heightened
refinancing risk on the USD300 million bond maturing November 2020.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE
OF THE RATING
"The review for downgrade reflects Binhai Investment's increasing
liquidity and refinancing risk in relation to its USD300 million bond
maturing November 2020," says Ada Li, a Moody's Vice President
and Senior Credit Officer.
"The company has yet to secure adequate internal financial resources and
committed refinancing arrangements to repay the bond, and the timing
of its announced investment from Sinopec Group remains unclear,"
says Li.
Moody's review will focus on: (1) the company's plan to refinance
its USD300 million bond due November 2020; and (2) the progress on
China Petrochemical Corporation's (Sinopec Group) proposed investment,
and any subsequent additional forms of direct financing support from Sinopec
Group.
The review for downgrade incorporates Moody's governance risks consideration
on Binhai Investment's financial policy, which is exhibited
by the absence of any committed refinancing arrangement three months before
the USD300 million bond maturity.
On 23 April, Binhai Investment announced that it had entered into
a conditional investment agreement for Sinopec Group to become its second
largest shareholder. In addition, the two companies have
entered into a master gas purchase and supply agreement whereby Sinopec
Group will supply low-cost gas to Binhai Investment.
The proposed transaction, if completed as planned, will improve
Binhai Investment's liquidity as it plans to use the net proceeds
from the new share subscription as general working capital and to repay
debt. At the same time, the affiliation with Sinopec Group
will improve Binhai Investment's access to capital markets and potentially
reduce Binhai Investment's financing costs.
Nevertheless, the net proceeds are not sufficient to fully cover
the maturing bond, and the potential form and timeliness of Sinopec
Group to provide support to resolve Binhai Investment's imminent
liquidity issues remain uncertain.
In addition, weakening economic conditions in China and the global
recessionary environment amid the coronavirus outbreak cast further uncertainty
on Binhai Investment's gas sales performance and its ability to
secure timely and sufficient refinancing.
In terms of environmental, social and governance (ESG) factors,
Moody's considers Binhai Investment's environmental risk to be low,
because the company's core natural gas distribution business plays
an important role in the government's air pollution control plan.
Binhai Investment faces moderate social risks in terms of worker health
and safety in relation to the construction and operation of its city gas
projects.
Moody's has taken into consideration the moderate to high governance
risks relating to its financial policy, as demonstrated by its management
of the refinancing of the USD bond maturing within the next three months.
The outlook could be stabilized if the company is able to refinance all
its maturing debt repayments and maintain a stable liquidity position
whilst maintaining its financial metrics within its current Ba1 rating
parameters.
The principal methodology used in this rating was Regulated Electric and
Gas Utilities published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1072530.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Binhai Investment Company Limited is principally engaged in providing
city gas distribution and gas pipe installation services in China,
mainly in the Tianjin municipality. Binhai Investment provides
services for 1.9 million households, and commercial and industrial
customers. During the first six months of 2020, the company
sold 520 million cubic meters of gas and transported 307 million cubic
meters of gas, recording year-on-year growth of 4%
and drop of 43%, respectively.
Binhai Investment is listed on the Hong Kong Stock Exchange and is 60.19%
owned by TEDA Investment Holding CO., LTD, which is
in turn a wholly owned conglomerate of the State-owned Assets Supervision
and Administration Commission of the Tianjin municipality.
The local market analyst for this rating is Qingqing Guo, +86
(212) 057-4093.
REGULATORY DISCLOSURES
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Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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The first name below is the lead rating analyst for this Credit Rating
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Ada Li
VP - Senior Credit Officer
Project & Infrastructure Finance
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
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Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 61 2 9270 8141
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
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JOURNALISTS: 852 3758 1350
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