Moody's lowers Zhuji SAMC view to negative

Moody's Investors Service said it affirmed the Baa3 issuer rating of Zhuji State-owned Assets Management Co., Ltd. (Zhuji SAMC), as well as the Baa3 senior unsecured rating on the bonds issued by Zhuji Development Ltd. and guaranteed by Zhuji SAMC.

Moody's has changed the outlook on these ratings to negative from stable.

The negative outlook reflects the material year-on-year increase in Zhuji SAMC's adjusted net debt of around RMB 9.4 billion in 2018 from 2017, resulting from a large increase in its other receivables, namely amounts due from other government-related entities, as well as the lower than expected cash payments from the Zhuji government, the agency said.

The ability of Zhuji SAMC to curb its debt growth in the next one- to two-years remains uncertain, given the expected large funding requirements for its ongoing investments and for infrastructure project development, Moody's said.

While Moody's expects cash payments from the Zhuji government will likely increase in 2019, as indicated by the government's strong land sales in the first five months of 2019, these larger cash payments may be insufficient to reduce the company's high leverage, the agency said.

Moody's also said it is concerned about the transparency and quality of the large amount of receivables due from other government related entities, including lower tier townships.

The ratings also consider the company's diversified business profile, monopoly position in various public services and strong access to domestic funding, the agency said.

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