HONG KONG, May 12, 2025. CSPI Ratings has assigned a global scale long-term issuer credit rating (LTICR) of ‘BBB-’ to Zhangzhou Yuanxin Investment Co., Ltd. (“ZYXI”), with a stable outlook. The company operates as the industrial investment and urban operation entity under Zhangzhou Yuanxin Construction Group Co., Ltd. ("Yuanxin Construction"), focusing on regional industrial investment and related asset management. Yuanxin Construction holds 100% equity of the company. ZYXI’s actual controller is the Finance Bureau of Zhangzhou High-tech Industrial Development Zone (“ZHIDZ Finance Bureau”). ZYXI’s issuer credit rating is based on a standalone credit profile (SACP) of ‘b-’ and our assessment that ZHIDZ government has extremely strong willingness to provide external support to the company in the event of financial distress.
KEY RATING RATIONALES
Credit Strengths
Sustained and robust support from the ZHIDZ government. The company is wholly owned by Yuanxin Construction, with its actual controller being the ZHIDZ Finance Bureau. The company has consistently received strong support from the ZHIDZ government, including capital injections and asset transfers. Between 2023 and 2024, the ZHIDZ government gratuitously transferred a portfolio of assets to the Company, including urban underground utility tunnels, pipeline networks and pumping stations, commercial properties and underground parking spaces in Lianpu Community Phase III, and a 20-year concession for advertising rights in Yuanshan New City, collectively increasing the Company’s capital surplus by CNY 2.5 billion. Additionally, shareholder capital injections of CNY 140.0 million during the reporting period have significantly strengthened its capital base. Given the Company’s critical role in driving industrial investment, asset operations, and engineering construction within ZHIDZ, and its strategic alignment with regional development priorities, the ZHIDZ government is expected to maintain necessary support as the Company continues to execute its operational mandate.
Stable credit outlook of the ZHIDZ government. ZHIDZ is located on the southern plain of the West River of the Jiulong River, boasting strong industrial development momentum and a positive economic growth trend. In 2024, ZHIDZ achieved a total regional GDP of CNY 25.6 billion, an increase of 5.5% compared to the previous year. General public budget revenue reached CNY 940.0 million, representing a year-on-year growth of 11.8%, ranking third in the city and first among development zones. ZHIDZ faces certain structural pressures in terms of debt. We estimate that its broad debt-to-fiscal revenue ratio may have exceeded 3.4x in 2023. However, thanks to the zone's solid budget surplus performance, its overall liquidity position remains manageable.
Credit Weaknesses
Relatively high financial leverage and low liquidity. In 2023 and 2024, ZYXI's debt-to-EBITDA ratio was 703.9 and 253.6 respectively. As ZYXI is responsible for regional industrial investment and related asset operations, it will still need to rely on further borrowing in the coming years to meet its funding requirements. It is expected that the debt scale will continue to grow, but as ZYXI's market-oriented business progresses steadily, its ability to accumulate self-owned funds and expand diversified financing channels is likely to improve, slowing the pace of debt growth.
Overall, ZYXI's debt-to-EBITDA ratio may decline in the coming years, but it will remain at a high level, posing significant financial pressure. In terms of liquidity, ZYXI's adjusted cash outflow in 2024 was approximately CNY 1.7 billion, primarily for short-term debts, with an adjusted cash flow coverage ratio of 0.6. Considering ZYXI's current undrawn bank facilities and future cash inflows and outflows, it is anticipated that the cash flow liquidity ratio over the next two years will remain below 1.0, reflecting tight cash flow conditions.
Low Profit Contribution and Settlement Cycle Mismatch in Trade Business. ZYXI's trade business faces certain pressures in profitability and capital turnover. From 2023 to 2024, trading sector revenue accounted for approximately 98% of total revenue, yet the gross margin remained below 0.5%, indicating relatively limited profit-generating capacity in the business model. Meanwhile, differences in procurement and sales settlement models between upstream and downstream parties lead to ongoing working capital advance pressures in operations. This type of capital occupation will further constrain ZYXI's cash flow turnover efficiency, while the quality of profitability remains highly dependent on the timeliness of receivables collection. We will continuously monitor related risk factors such as the stability of cooperation with core customers, the collection of accounts receivable, and changes in supplier settlement policies.
Challenges to income generation and market-oriented operational efficiency for certain injected assets. A portion of assets integrated into ZYXI includes infrastructure and public service facilities designed to support regional development. Due to their functional nature, these projects typically exhibit long payback periods and relatively low operating returns. Risks such as future regional planning adjustments, shifts in government support policies, or delays in development timelines could adversely affect the asset profitability and capital turnover efficiency of ZYXI. While the company has enhanced its operational self-sufficiency through measures like expanding market-oriented operations and optimizing asset portfolios, the proportionate weighting of such assets in total holdings necessitates ongoing monitoring of their long-term implications on overall financial performance.
RATING OUTLOOK
The Stable rating outlook reflects our expectation that the ZHIDZ government will maintain a stable credit profile and that the company is expected to continue to receive significant external support from the ZHIDZ government. We would consider a rating downgrade if 1) ZYXI’s ties with the ZHIDZ government loosen from current level; 2) The economic strength and fiscal capacity of ZHIDZ declines significantly; and/or 3) ZYXI’s market position in ZHIDZ declines significantly.
We would consider a rating upgrade if 1) ZYXI’s importance to the ZHIDZ government increases significantly; 2) The fiscal revenue scale of the ZHIDZ government has significantly increased, with a notable improvement in liquidity conditions and a substantial reduction in debt pressure; and or;3) There is substantial improvement in ZYXI’s leverage and financial profile.
ANALYST CONTACTS
Primary Analyst
Tingting Qiao
+852 3615 8339
tingting.qiao@cspi-ratings.com
Secondary Analyst
Elka Zhou
+852 3615 8307
elka.zhou@cspi-ratings.com
Committee Chair
Larissa Wu
+852 3615 8317
larissa.wu@cspi-ratings.com
Media Contact
Rating Services Contact
Allen Wei
+852 3615 8324
Date of Relevant Rating Committee: 28 April 2025
Additional information is available on www.cspi-ratings.com
Related Criteria
General Corporate Rating Criteria (15 March 2018)
Government-Related Entities Rating Criteria (31August 2018)
Corporate Financial Adjustments and Ratio Definitions (7 May 2018)
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