Zhenjiang Transportation #BB# Rating Placed On CreditWatch Negative On Rising Refinancing Risk, Uncertain Support

Stocks and Financial Services Press Releases Tuesday June 12, 2018 18:40
SINGAPORE--12 Jun--S&P Global Ratings

SINGAPORE (S&P Global Ratings) June 12, 2018--S&P Global Ratings today placed its 'BB' long-term issuer credit rating on Zhenjiang Transportation Industry Group Co. Ltd. on CreditWatch with negative implications. At the same time, we also placed the 'BB' long-term issue rating on the company's outstanding U.S. dollar-denominated senior unsecured bonds on CreditWatch with negative implications.

Zhenjiang Transportation is a local government financing vehicle (LGFV) for the Zhenjiang municipal government.

We placed the ratings on CreditWatch because Zhenjiang Transportation's liquidity profile is weakening. In our view, this may signal a deterioration in the municipal government's administrative capacity or willingness to provide timely and sufficient support to the company under a financial stress scenario. The rating on Zhenjiang Transportation is highly dependent on the government's effective support when needed.

We have also revised our liquidity assessment of Zhenjiang Transportation to weak from less than adequate in view of the heightened refinancing pressure on its short-term debt. The company has been seeking to secure bank loan financing and lift its domestic bond quota on the basis of an improved operating performance in 2017. However, Zhenjiang Transportation's overall funding costs have surged faster than most of its LGFV peers' since the beginning of 2018. The coupon for its Chinese renminbi (RMB) 500 million bond issued in March this year reached 8%.

In our view, Zhenjiang Transportation's funding costs will remain high over the next 12 months should it continue to substantially tap its current financing channels. Zhenjiang Transportation relies heavily on local trusts and financial leases, which the financial sector regulator in China defines as non-standard debt. Such financing is generally more expensive, and has higher renewal risks when the financing market is tightening.

Given Zhenjiang Transportation's weakening liquidity, we need to review our assessment that there is an extremely high likelihood that the company could receive timely and sufficient extraordinary support from Zhenjiang municipal government when needed. While the company's policy role for the municipal government does not appear to have changed, we are uncertain about the municipal government's control mechanisms and capacity to provide timely support to state-owned enterprises.

We expect to resolve the CreditWatch within three months after we clarify the government's administrative mechanisms and capacity to support the company's coming debt refinancing plan.
We could lower the rating by one or more notches if we assess the likelihood of Zhenjiang Transportation obtaining extraordinary government support has weakened materially.

We may affirm the rating if: (1) Zhenjiang Transportation's refinancing capability improves and new refinancing costs stabilize; and (2) we assess the likelihood of extraordinary government support remains extremely high.


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