Beijing State-Owned Assets Management Co. Ltd. #A# and Hong Kong Subsidiary #A-# Ratings Outlooks Stable

Stocks and Financial Services Press Releases Friday April 27, 2018 11:28
HONG KONG--27 Apr--S&P Global Ratings
HONG KONG (S&P Global Ratings) April 27, 2018--S&P Global Ratings affirmed its 'A' long-term issuer credit rating on Beijing State-Owned Assets Management Co. Ltd. (BSAM). The outlook is stable.

At the same time, we affirmed the 'A-' long-term issuer credit rating on Beijing State-Owned Assets Management (Hong Kong) Co. Ltd. (BSAM HK), with a stable outlook. We also affirmed the 'A-' long-term issue rating on the US$1 billion senior unsecured notes issued by BSAM HK, which is the sole offshore platform of BSAM.

We affirmed our rating on BSAM because we believe there is an extremely high likelihood that the company would receive support from Beijing government at times of need. This expected support provides a six-notch rating uplift from BSAM's stand-alone credit profile (SACP) of 'bb'.

In our view, BSAM will continue to fulfill policy initiatives on behalf of the Beijing government. In 2017, BSAM was appointed as the capital city's financing representative for construction of the National Speed Skating Stadium--the only new stadium to be built in Beijing for the 2022 Winter Olympic Games. In this role, BSAM will coordinate the financing of the stadium, and operate the venue after the Games conclude. Meanwhile, BSAM will help coordinate the Olympic opening and closing ceremonies at the National Stadium, which is also currently managed by the company. Costs for this undertaking will be fully reimbursed by the government.

In our view, BSAM's high-profile asset portfolio (including premier sports and leisure, financial, and industrial assets), as well as its track record of operating these investments at a profit, has helped the company maintain its position as the "go-to" entity for cultural and sports activities in the capital city.

We also expect BSAM's 'bb' SACP to remain stable over the next 12-24 months. BSAM made limited new investments or divestitures during the past 12 months; as a result, the company's asset and leverage profile has remained largely stable. Going forward, we expect the company to continue focusing on investments in the greater Beijing area, with potential investments into theme parks, industrial-park development, elderly care centers, and sports and leisure facilities.

Although the company could potentially invite third-party participants to take equity stakes in upcoming projects, we anticipate BSAM will still need to come up with a substantial amount of upfront investment funds. This will require increased debt, resulting, by our estimates, in some deterioration of BSAM's loan-to-value (LTV) ratio. Nonetheless, we expect BSAM to spend no more than Chinese renminbi (RMB) 3 billion-RMB 4 billion per year over the next two years, hence maintaining its LTV ratio comfortably below 60%. At the same time, steadily growing dividend income from its portfolio will provide additional buffers to stabilize cash flow.

We also expect BSAM HK to maintain its status as a highly strategic subsidiary of BSAM. BSAM HK is the only offshore investment and financing platform for BSAM. In our view, BSAM will increase its focus on domestic investment over the next two to three years--especially around the greater Beijing area--. However, we believe the financial health of BSAM HK will remain important to the parent, given BSAM HK's role as a manager and operator of offshore assets and liabilities.

The stable outlook on BSAM reflects our expectation that the company will continue to receive strong support from the Beijing government, given its role as the investment platform to support social objectives and the development of strategically important industries in a commercial manner. We anticipate that BSAM will manage its LTV ratio within our expectation for the current rating, and the company's key portfolio characteristics will remain largely stable over the next 24 months.

The stable outlook on BSAM HK reflects that on the parent. We expect BSAM HK to remain a highly strategic subsidiary of BSAM, given its position as the key financing and operational platform for BSAM outside China. As such, we expect BSAM HK's credit rating to move in tandem with that of BSAM.

We could lower the rating on BSAM if we believe the Beijing government's creditworthiness has deteriorated or if the company's link with, and importance to, the Beijing government weakens. This could be indicated by (1) the municipal government transferring a significant amount of assets under BSAM to other state-owned enterprises (SOEs); or (2) the Beijing government explicitly specifying that BSAM's importance to managing municipal assets is less than that of other fellow SOEs; or (3) the Beijing government reduces its ownership of BSAM to materially below 100%.

We could also lower the rating if our assessment of BSAM's SACP declines by two notches or more (i.e., to 'b+' or below). This could happen if the company finances a very significant portion of its investments through debt, or if the value of investments deteriorates materially due to weakened operating performance at investee companies. BSAM's LTV ratio exceeding 60% would indicate such credit deterioration.

The potential for an upgrade is limited, in our view. We could raise the rating on BSAM if its SACP is raised to 'a' or above, which we see as unlikely over the next two years at least.

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