Hong Kong, September 12, 2018 -- Moody's Investors Service has today upgraded Guangzhou Metro Group
Co., Ltd.'s (GZ Metro) issuer rating to A1 from
A3.
At the same time, Moody's has upgraded the backed senior unsecured
medium-term note (MTN) program and backed senior unsecured debt
ratings for Guangzhou Metro Investment Finance (BVI) Ltd. —
a wholly owned subsidiary of GZ Metro — to (P)A2 from (P)Baa1 and
A2 from Baa1 respectively.
The outlook on all ratings remains stable.
These rating actions reflect Moody's updated view on support for
government-related issuers (GRIs) owned by regional and local governments
(RLGs). Please refer to today's separate press releases for
more details on Moody's updated view.
GZ Metro's baseline credit assessment (BCA) of baa1 remains unchanged.
RATINGS RATIONALE
The ratings upgrade reflects the strengthened credit profile of GZ Metro,
following Moody's updated view that the China central government's
A1 rating is a better indicator in assessing support for RLG-owned
GRIs.
GZ Metro is in a very unique position, because, apart from
benefiting from Moody's assessment of an A1 rating as the indicator
of support, its credit profile is underpinned by: 1) Moody's
continued expectation of "Very High" support from the central
government to GZ Metro in times of need, due to GZ Metro's
importance to national policy objectives and the priorities set by the
central government, and 2) GZ Metro's strong standalone credit
fundamentals, as indicated by the company's BCA of baa1.
The combination of these factors — namely the very high likelihood
of support, the use of the China central government's A1 rating
as the indicator of strength of support, and GZ Metro's own
strong standalone credit fundamentals — has bolstered GZ Metro's
overall credit profile and Moody's assessment of its A1 rating,
which includes joint default analysis.
Moody's considers that A1 China central government rating is a better
indicator for assessing support for RLG-owned GRIs, because
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 of 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.
Moody's has maintained its expectation of support at "Very
High" for GZ Metro, given 1) the importance and centrally
planned nature of China's metro sector and its key role in meeting
national policies and objectives, 2) the public policy role of GZ
Metro in operating and developing the metro system in Guangzhou,
a city which is one of the four first-tier cities in China,
and which is also the provincial capital city of Guangdong Province,
and 3) the central government's approval and close oversight of
GZ Metro's annual budget, which is closely linked to the fiscal
budget of Guangzhou city.
Furthermore, Moody's believes that a failure by GZ Metro would
risk a broader systemic problem in the debt markets, which could
also materially impact economic activity.
This situation supports Moody's view that, while the likelihood
of support is reducing for some GRIs, it nevertheless remains very
high for GZ Metro.
Moody's has also lowered its assessment of dependence for GZ Metro
to "High" from "Very High", given its less
direct financial linkage to the central government — when compared
with the Guangzhou city government — but this change in dependence
does not affect GZ Metro's ratings.
The stable outlook on GZ Metro's ratings reflects: 1) the
stable outlook on the sovereign rating; and 2) the consideration
that the company's BCA remains appropriately positioned at baa1.
Ratings upgrade potential is unlikely, given that GZ Metro's
issuer rating is on par with China's sovereign rating of A1.
The ratings could be downgraded if 1) Moody's view of the likelihood
of support for GZ Metro weakens, and/or 2) GZ Metro's BCA
weakens meaningfully.
The methodologies used in these ratings were Mass Transit Enterprises
Methodology published in December 2017, and Government-Related
Issuers published in June 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
Guangzhou Metro Group Co., Ltd. invests in,
constructs and operates Guangzhou city's metro system. Founded
in 1992, GZ Metro is wholly owned by the State-owned Assets
Supervision and Administration Commission of the Guangzhou city government.
The SASAC classifies GZ Metro as a quasi-welfare state-owned
enterprise.
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.
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.
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
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
Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
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