Fitch Ratings has affirmed and simultaneously withdrawn China-based Zhuhai Port Holdings Group Co., Ltd.’s (ZHPG) Long-Term Foreign-Currency Issuer Default Rating (IDR) of ‘BBB-‘.

Fitch has chosen to withdraw the ratings of ZHPG for commercial reasons.

Key Rating Drivers

‘Strong’ Control, Support Record: We assess ZHPG’s status, ownership and control as ‘Strong’, as the Zhuhai government owns the majority of the company’s shares and exerts strong control over ZHPG through the Zhuhai State-owned Assets Supervision and Administration Commission (SASAC). Zhuhai SASAC appoints the company’s board and senior management, approves major investment and financing plans, and monitors operating and financial performance.

We also assess the support record as ‘Strong’ to reflect the consistent support received by ZHPG from the municipal government, including capital and zero-cost asset injections, subsidies and policy backing.

‘Strong’ Incentive to Provide Support: Fitch assesses the socio-political implications of a ZHPG default at ‘Strong’, because it is the sole developer and operator of Zhuhai port, the only deep-water port in the city and the west bank of the Pearl River Delta. ZHPG is also the exclusive city gas provider and has been appointed by the government to complete Zhuhai’s natural gas network.

Fitch assesses the financial implications of a default by ZHPG for the Zhuhai government as ‘Strong’. ZHPG was Zhuhai’s fourth-largest local government-related entity (GRE) by asset size and by the amount of outstanding bonds at end-3Q22. Its default will damage the creditability of Zhuhai city and impair funding access to the city’s other GREs.

Diversified Business; High Leverage: Fitch assesses ZHPG’s Standalone Credit Profile (SCP) at ‘b’; the SCP is supported by a diversified business, but constrained by high leverage. ZHPG has good-quality port assets and a stable gas business, which form its core operation. It has also entered into other areas, such as the new-energy business. Fitch estimates leverage, measured by net debt/EBITDA, will stay high in the next one to two years considering the company’s large debt base and weak profitability, despite no major capital expenditure plan.

Sufficient Financial Flexibility: ZHPG’s credit profile is supported by the group’s smooth and diversified funding access, and well-spread debt maturity profile. ZHPG enjoys ample unused bank facilities due to its state-owned enterprise (SOE) background. ZHPG and its major listed subsidiaries are active bond issuers in onshore markets and bond issuances have proceeded smoothly. There is no concentration of ZHPG’s debt maturities in a single year.

Derivation Summary

ZHPG’s IDR is notched from Fitch’s internal assessment of the credit profile of Zhuhai municipality under our Government-Related Entities Rating Criteria, due to the high likelihood of support from the local government. The rating gap is comparable with that of other municipal SOEs that perform certain public-service roles, such as Shougang Group Co., Ltd. (A-/Stable), which is owned by Beijing SASAC.

ZHPG’s linkages to the municipality are weaker than that of Zhuhai Huafa Group Co., Ltd. (BBB/Stable), the largest SOE under Zhuhai SASAC, reflecting ZHPG’s smaller scale, lower level of control by the government and weaker financial implications should it default. Huafa accounts for more than half of the total assets held by the municipality’s SOEs and is the largest onshore bond issuer among all local SOEs.

However, Fitch assesses ZHPG to have ‘Strong’ socio-political implications of default due to its critical role in providing public services related to the port and city gas. In comparison, the socio-political implications of a default by Huafa are ‘Moderate’, due to its involvement in urban development and commercial property, which face competition from the private sector.
Source: Fitch Ratings