05-01-2018

Moody’s: Shanghai International Port’s acquisition of a 50% stake in Shanghai Xingwaitan is credit negative

Moody’s Investors Service says that Shanghai International Port (Group) Co., Ltd’s (SIPG) acquisition of a 50% stake in Shanghai Xingwaitan Development and Construction Limited is credit negative, but will not immediately affect SIPG’s A1 issuer rating or the A2 backed senior unsecured bond ratings of Shanghai Port Group (BVI) Holding Co., Ltd.

The ratings outlook remains stable.

“SIPG’s acquisition of a 50% stake in Shanghai Xingwaitan is credit negative because the move will result in SIPG’s financial profile weakening slightly,” says Osbert Tang, a Moody’s Vice President and Senior Analyst.

“The project will not provide immediate material cash flow to SIPG,” adds Tang, who is also Moody’s Local Market Analyst for SIPG. “Yet, it will raise slightly the company’s financial leverage.”

On 29 December 2017, SIPG announced that it won the bid for a 50% equity interest in Shanghai Xingwaitan — owned by China Jinmao Holdings Group Limited (Baa3 stable) — at a consideration of RMB6 billion, through the listing-for-sale process organized by the Assets and Equity Exchange.

Shanghai Xingwaitan is principally engaged in the development and operation of the Shanghai Star Harbour International Centre Project, which is a commercial and office complex with a total gross floor area of 427,631 square meters. The construction of the project’s structure and the curtain walls of its towers have basically been completed.

SIPG currently owns a 50% equity interest in Shanghai Xingwaitan and upon the completion of the acquisition, Shanghai Xingwaitan will be 100% owned by SIPG and consolidated into the latter’s accounts. At 31 August 2017, Shanghai Xingwaitan’s debt totaled RMB3.3 billion, which was equivalent to 9% of SIPG’s reported debt at 30 September 2017.

SIPG intends to finance the acquisition consideration through a combination of cash and debt, and the company plans to repay the debt this year, partly with the proceeds from the planned disposal of two other property projects announced in November 2017.

Considering the acquisition cost and the consolidation impact of Shanghai Xingwaitan’s standalone financials, Moody’s estimates that SIPG’s adjusted funds from operations (FFO)/debt and FFO interest coverage will slightly deteriorate to around 20%-21% and 6.0-6.5x, respectively, over the next 12-18 months.

The credit metrics that Moody’s would consider in lowering SIPG’s baseline credit assessment are FFO/debt below 20% and/or adjusted FFO interest cover below 6.0x on a sustained basis.

Moody’s will closely monitor SIPG’s future plan for the Shanghai Star Harbour International Centre Project, including whether or not the company plans to dispose of this project.

The methodologies used in these ratings were Privately Managed Port Companies published in September 2016, and Government-Related Issuers published in August 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Shanghai International Port (Group) Co., Ltd (SIPG) is the dominant player in the Port of Shanghai, which is in turn the largest container port globally by throughput volume. The company handled 29.9 million 20-foot equivalent units (TEUs) between January and September 2017.

At 31 December 2017, SIPG was 44.38% directly and indirectly owned by the Shanghai State-owned Assets Supervision and Administration Commission (SASAC). China Merchants Port Holdings Company Limited (Baa1 negative) was the second-largest shareholder, with a total stake of 25.99% as of the same date.

Source: Moody’s Investors Service

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