Hong Kong, July 30, 2020 -- Moody's Investors Service has upgraded the issuer ratings of Chengdu
Tianfu New Area Investment Group Co., Ltd (Chengdu Tianfu)
and Hunan Xiangjiang New Area Development Group Co., Ltd
(Hunan Xiangjiang) to Baa2 from Baa3, following the publication
of its Local Government Financing Vehicles (LGFVs) in China Methodology
on 29 July 2020.
Moody's has also upgraded the senior unsecured ratings on the notes
issued by Chengdu Tianfu and Hunan Xiangjiang to Baa2 from Baa3.
All rating outlooks remain stable.
At the same time, Moody's has withdrawn the Baseline Credit Assessments
(BCAs) previously assigned to these two companies, reflecting the
change in primary methodology to LGFVs in China from Government-Related
Issuers Methodology.
The upgrades of Chengdu Tianfu and Hunan Xiangjiang reflect (1) Moody's
classification of these issuers as LGFVs under the new methodology,
and (2) Moody's assessment that these LGFVs should be rated closer
to the "Government Capacity to Support" (GCS) score of their
respective RLG owners, given their strategic roles and dominant
position in providing essential public policy services in China's
"New Areas" on behalf of their government owners.
RATINGS RATIONALE
Chengdu Tianfu's Baa2 ratings are based on (1) the Chengdu government's
GCS score of a3; and (2) Moody's assessment of how the company's
characteristics affect the Chengdu government's propensity to support,
resulting in a two-notch downward adjustment.
The assessment considers Chengdu Tianfu's role as the dominant public
service provider in the Tianfu New Area, as well as its 100%
ultimate ownership by the Chengdu government. Chengdu Tianfu is
different from other LGFVs owned by the Chengdu government because of
its strategic role and public policy mandates in the Tianfu New Area,
and the fact that Tianfu New Area is one of the 19 national level "New
Areas" approved by the State Council with a track record of robust
development. As a result, Chengdu Tianfu's rating is
one notch closer to the Chengdu government's GCS compared with its
rated peers.
Hunan Xiangjiang's Baa2 ratings are based on (1) the Changsha government's
GCS score of a3; and (2) Moody's assessment of how the company's
characteristics affect the Changsha government's propensity to support,
reflecting in a two-notch downward adjustment.
The assessment considers Hunan Xiangjiang's role as the dominant
public service provider in the Xiangjiang New Area, as well as its
100% ultimate ownership by the Changsha government. Hunan
Xiangjiang is different from other LGFVs owned by the Changsha government
because of its strategic role and public policy mandates in the Xiangjiang
New Area, and the fact that the Xiangjiang New Area is one of the
19 national level "New Areas" approved by the State Council
with a track record of robust development. As a result, Hunan
Xiangjiang's rating is one notch closer to the Changsha government's
GCS compared with its rated peers.
The change in the primary methodology reflects the publication of Moody's
new LGFVs in China methodology and Moody's view that (1) RLG support is
the dominant credit consideration for an LGFV; and (2) LGFV-specific
characteristics may also affect the RLG's propensity to support
LGFVs.
LGFVs are entities that are directly or indirectly fully owned and effectively
controlled by RLGs. They primarily engage in financing, investing
in and operating public infrastructure and social welfare projects on
behalf of their RLG owners.
Because the primary purpose of LGFVs is to serve public policy objectives
and provide public goods or services for free or at subsidized rates,
they are typically closely integrated with their RLG owners, and
RLGs typically provide the majority of LGFVs' cash flow.
The analytical framework in this rating methodology comprises two components:
1) The "Governmental Capacity to Support" (GCS) component,
which considers aspects that could influence an RLG-owner's
ability to provide support to an LGFV in a timely manner; and
2) The "LGFV Characteristics Affecting Support" component,
primarily based on (1) an LGFV's business profile; (2) its
integration with the RLG as well as the control and oversight provided
by the RLG; (3) the risk that the LGFV will need to bail out other
entities; and (4) any exceptional governmental willingness to support
characteristics, and other analytical considerations. This
analysis may result in downward or, more rarely, upward adjustments
in whole notch increments to the GCS score.
The ratings also consider the following environmental, social and
governance (ESG) factors.
Environmental risks are low for both issuers.
LGFVs generally have high social risks since they implement public policy
initiatives by building, owning and operating public infrastructure.
Demographic changes, public awareness and social priorities shape
their development targets and ultimately affect their respective owner
RLGs' propensity to provide support. Both issuers are exposed
to a high degree of social risk since they implement public policy initiatives
by building, owning and operating public infrastructure.
Governance considerations are also material to the ratings, as the
issuers are subject to oversight and reporting requirements to its owner
RLG, reflecting their public policy role and status as a government
owned entity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlooks for Chengdu Tianfu and Hunan Xiangjiang reflect (1)
the stable outlook on the China's A1 sovereign rating; (2)
Moody's expectation that their respective RLG owners' GCS
will remain stable, and (3) their business profiles and integration
with their RLG owners, and Moody's view that the control and
oversight provided by their respective owners will remain largely unchanged
over the next 12-18 months.
Moody's has recalibrated the rating tolerance levels of these LGFVs to
reflect the change in methodology and corresponding credit drivers.
Chengdu Tianfu's and Hunan Xiangjiang's ratings could be upgraded
if
(1) China's sovereign rating is upgraded or their respective cities'
GCS strengthens, which could be the result of a material strengthening
in the city's economic or financial profile, or their ability
to coordinate timely support; or
(2) Their characteristics change in a way that strengthens their RLG owners'
propensity to support, such as through the issuers becoming more
strategically important to their respective city governments; or
through an increase in government payments and an improvement in the predictability
of government payment mechanisms, whereby dedicated fiscal budget
allocations and transfers from higher-tier governments can consistently
cover a large share of their operational and debt servicing needs.
On the other hand, the ratings could be downgraded if
(1) China's sovereign rating is downgraded or their respective governments'
GCS weakens, which could be the result of a material weakening in
the city's economic or financial profile, or their ability
to coordinate timely support;
(2) There are changes in the Chinese government's policies that
prohibit RLGs from providing financial support to LGFVs; or
(3) Their characteristics change in a way that weakens their RLG owners
propensity to support, such as through:
• Material changes in their businesses, including substantial
expansions into commercial activities at the cost of public services,
and/or substantial losses in commercial activities;
• A decline in their position as the largest and dominant public
service providers in their respective areas; or
• Rapid increases in their debt and leverage with less corresponding
government payments.
The principal methodology used in these ratings was Local Government Financing
Vehicles in China Methodology published in July 2020 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216254.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Chengdu Tianfu New Area Investment Group Co., Ltd is 100%-owned
by the Management Committee of the Chengdu Region of the Tianfu New Area,
Sichuan Province. It is also directly supervised by the Chengdu
City government. It is the only entity that is mandated by the
government to develop the Tianfu-Chengdu Region. The company
is primarily in charge of urban infrastructure construction and the development
of properties in the Tianfu-Chengdu Region. At the end of
2019, Chengdu Tianfu reported total assets of RMB113 billion.
Hunan Xiangjiang New Area Development Group Co., Ltd is 100%
directly owned by the Changsha Government. It is a key company
involved in the development of the Xiangjiang New Area in Changsha,
Hunan Province. The company mainly engages in the primary land
development and construction of infrastructure projects in the Xiangjiang
New Area. Its assets totaled RMB72 billion at the end of 2019.
The local market analyst for Chengdu Tianfu New Area Investment Group
Co., Ltd's ratings is Sue Su, +86 (106) 319-6505.
The local market analyst for Hunan Xiangjiang New Area Development Group
Co., Ltd's ratings is Yan Li, +86 (106) 319-6572.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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
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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,
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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Moody's considers a rated entity or its agent(s) to be participating
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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
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Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
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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
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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
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
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