Hong Kong, December 14, 2021 -- Moody's Investors Service has upgraded Jiangxi Provincial Water
Conservancy Invt Grp's (Jiangxi Water) issuer rating to Baa1 from
Baa2.
At the same time, Moody's has upgraded the senior unsecured rating
assigned to the USD bonds issued by Jiangxi Provincial Water Conservancy
(China) and guaranteed by Jiangxi Water to Baa1 from Baa2.
The outlooks for all ratings have been changed to stable from rating under
review.
This rating action concludes the review for upgrade initiated on 25 November
2021.
"The upgrade reflects the elevated strategic importance of Jiangxi Water
in the provincial government's 14th Five Year Plan. As such,
we expect higher clarity and certainty of government support for the company's
urban and rural water supply integration projects across counties and
districts in Jiangxi province, " says Cedric Lai, a Moody's
Vice President and Senior Analyst, adding "The enhanced government's
propensity to support has resulted in a rating upgrade."
RATINGS RATIONALE
As the sole provincial water conservancy platform in Jiangxi province,
Jiangxi Water undertakes key water conservancy projects, urban and
rural water supply integration projects that the company acquires and
manages under government mandates. Recent government policy documents
have highlighted the importance of water supply security in the 14th Five
Year Plan and added more clarity regarding government support for these
projects. As of the end of November 2021, Jiangxi Water's
urban and rural water supply integration projects have consolidated water
supply companies in 52 counties and districts in Jiangxi, covering
over half of the population in the province.
According to recent guidelines and policies published by the central and
Jiangxi provincial governments, notably "The 14th five-year
plan for security in water supply" published by Jiangxi provincial
department of water resources in September 2021, the company's
urban and rural water supply integration projects are defined as key public
infrastructure in rural areas backed by strong government support.
These urban and rural water supply integration projects are essential
to ensuring the quality and standard of water supplied to rural residents,
which has become a key initiative for Jiangxi's provincial government.
Moreover, such projects are also emphasized in the central government's
rural revitalization strategy.
Furthermore, Jiangxi province is an important province for the water
conservancy sector because of its abundant water resources. Moody's
believes under the central and provincial government's new five-year
plan, such water conservancy projects and water supply infrastructure
will become more important given the country's development focus
to improve the overall living standard and safety of urban and rural residents.
With Jiangxi Water's elevated strategic importance, Moody's
expects the company to benefit from enhanced priority of government's
funding support and access to low cost funding such as loans from policy
banks. The increased government's propensity to support has
resulted in a rating upgrade.
Jiangxi Water's Baa1 issuer rating is based on (1) Jiangxi provincial
government's GCS score of a2; (2) Moody's assessment of how the company's
specific characteristics affect the Jiangxi provincial government's propensity
to provide support, which results in a two-notch downward
adjustment.
Moody's assessment of Jiangxi's GCS score reflects (1) its status as a
province with direct reporting lines to the central government and its
positioning at one of the higher administrative levels in Moody's assessment
of the hierarchy of China's regional and local governments (RLGs);
(2) its moderate economic and fiscal profiles, relatively moderate
risks from the local banking system and relatively low contingent liability
risks from its state-owned enterprises (SOEs).
Jiangxi Water's Baa1 issuer rating reflects the Jiangxi government's propensity
to support the company, given (1) the provincial government's ultimate
ownership of the company and Jiangxi Water's role as the sole provincial
water conservancy platform; (2) the track record of government cash
payment; and (3) Jiangxi Water's strong access to funding.
However, the two-notch downward adjustment from Jiangxi government's
GCS score mainly reflects 1) Jiangxi Water's medium exposure and
investment in commercial businesses, which mainly include construction,
solar and hydro renewable projects, and local property development,
and 2) its relatively fast debt growth to support the investment in water
supply and water conservancy projects relative to government cash payments.
The rating also takes into account the following environmental,
social and governance (ESG) factors.
Moody's considers Jiangxi Water's environmental risk to be
moderate. Jiangxi is a province with abundant water resources,
and the company's operations could be affected by any water diversion
and pollution; for example, the water quality of its reservoir
or incoming polluted raw water for its water supply plants. However,
the company's policy goal of conserving water resources within the
province and its importance in flood control are in line with the national
policy, and Moody's expects to see policy support and its
compliance with environmental regulations.
Jiangxi Water bears high social risks due to its engagement in large-scale
water conservancy project investments and water supply projects that could
affect the health and safety of the province's residents. The water
projects undertaken by Jiangxi Water carry significant social functions
for the benefit of Jiangxi residents, including flood control and
maintaining the quality and capacity of water supply in the province,
benefiting over half of the population of Jiangxi province.
Governance considerations are also material to the ratings, as Jiangxi
Water is subject to oversight and reporting requirements to its owner
RLG, reflecting its public policy role and status as a government-owned
entity.
Jiangxi Water's stable outlook reflects (1) the stable outlook on China's
sovereign rating; (2) Moody's expectation that the Jiangxi
government's GCS score will remain stable, and (3) Moody's
view that the control and oversight by the Jiangxi government will remain
largely unchanged over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The rating could be upgraded if (1) China's sovereign rating is
upgraded or the Jiangxi government's GCS strengthens, which
could be a result of a material strengthening of Jiangxi government's
economic or financial profile, or their ability to coordinate timely
support; (2) Jiangxi Water's specific characteristics change in a
way that enhances the Jiangxi government's propensity to support the company,
such as a significant improvement in the visibility of recurring government
support, including the provision of grants and subsidies.
The rating could be downgraded if (1) China's sovereign rating is
downgraded; or Jiangxi government's GCS weakens, which
could be a result of a material weakening in Jiangxi government's
economic or financial profile, or the government's ability
to coordinate timely support; (2) Jiangxi Water's specific characteristics
change, including the government financial support for water conservancy
projects declining substantially, such that it lowers the Jiangxi
government's propensity to support; or there are changes in
the Chinese government's policies that prohibit the Jiangxi government
from providing financial support to Jiangxi Water; (3) Jiangxi Water's
business model becoming less predictable and the company engaging in riskier
business segments; and (4) a material weakening in Jiangxi Water's
market position and policy functions.
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.
Established in 2008, Jiangxi Provincial Water Conservancy Invt Grp
(Jiangxi Water) is the sole provincial-level water conservancy
state-owned enterprise (SOE) within Jiangxi province. The
company is 90% owned by Jiangxi Provincial State-owned Assets
Supervision & Administration Commission (Jiangxi SASAC) and 10%
owned by Jiangxi Administration Asset Group Co Ltd. Jiangxi Water's
business activities include investments in and the operation of water
conservancy projects, urban and rural water supply integration,
hydropower and solar projects. The company reported revenue of
RMB4.7 billion for 2020; and total assets recorded RMB59.7
billion as of the end of 2020.
The local market analyst for these ratings is Sarah Xu, +86
(21) 2057-4030.
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Cedric Lai
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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China (Hong Kong S.A.R.)
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Gary Lau
MD - Corporate Finance
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