Moody’s Confirms Ratings for 9 Chinese LGFVs with Negative Outlook: Navigating Evolving Government Support Dynamics

Moody’s has confirmed the ratings of nine Chinese local government financing vehicles (LGFVs) following a review of the governmental capacity to support (GCS) scores of their respective regional and local governments (RLGs).

GCS scores of five RLGs owning seven LGFVs were lowered due to expectations of more selective support from upper-tier governments amidst increased debt levels and a decline in land sales revenue.

The negative impact on seven LGFVs’ ratings is balanced by strengthened government propensity to support, narrowing the gap between ratings and GCS scores. Two LGFVs owned by Jinan city government maintain unchanged GCS scores.

Moody’s changed the outlooks on all nine LGFVs’ ratings to negative, anticipating a potential weakening in GCS scores of their respective RLG owners, influenced by the negative outlook on China’s sovereign rating.

Ratings rationale includes factors like improved LGFV characteristics offsetting negative GCS score changes and unchanged GCS scores of RLG owners.

• Individual LGFVs’ confirmation:
• Chongqing Development Investment Co. Ltd: A3 issuer rating reflects elevated strategic importance, offsetting Chongqing municipality’s GCS score decline.
• Chengdu High-Tech Investment Group Co. Ltd.: Baa2 issuer rating reflects reduced contingent risks offsetting Chengdu city’s GCS score decline.
• Chengdu Tianfu New Area Invs. Grp. Co., Ltd: Baa2 issuer rating reflects increasing strategic importance, offsetting Chengdu city’s GCS score decline.
• ChengDu JingKai GuoTou Inv Grp Co.,Ltd.: Ba2 corporate family rating reflects elevated strategic importance, improved financial management, offsetting Chengdu city’s GCS score decline.
• Henan Water Conservancy Investment Grp Co Ltd: A3 issuer rating reflects elevated strategic importance, improved predictability in government payments, aligning with Henan province’s GCS score.
• Qingdao Haifa State-Owned Cap Invt & Op Group: Baa3 issuer rating reflects reduced contingent risk, offsetting Qingdao city’s GCS score decline.
• Shandong Finance Investment Group Co., Ltd: A2 issuer rating reflects Shandong government’s strong propensity to support, aligning with Shandong province’s GCS score.
• Jinan Energy Group Co., Ltd and Jinan City Construction Group Limited Company maintain Baa1 issuer ratings due to unchanged GCS scores and government propensity to support.

The negative outlooks on the nine LGFVs’ ratings reflect Moody’s expectation of a potential weakening of their respective RLG owners’ capacity to support, given the negative outlook on China’s sovereign rating.

Factors that could lead to an upgrade or downgrade of the ratings are outlined, including the unlikely possibility of upward rating pressure given the negative outlooks and conditions for returning the outlooks to stable.

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