HONG KONG, March 21, 2025. CSPI Ratings has assigned a global scale long-term issuer credit rating (LTICR) of ‘BBB’ to Zhengzhou Jianzhong Construction and Development (Group) Co., Ltd.(ZJCD), with a stable outlook. ZJCD is an important infrastructure construction entity in Guancheng Hui District (GHD), engaged in regional project construction, land consolidation and development, trading business, building materials sales and landscape maintenance. ZJCD’s sole shareholder and ultimate controller is Guancheng Hui District Finance Bureau (GHDFB). ZJCD’s issuer credit rating is based on a standalone credit profile (SACP) of ‘b-’ and our assessment that GHD government has extremely strong willingness to provide external support to the company in the event of financial distress.

We have also assigned an issuance credit rating of 'BBB' to ZJCD’s proposed senior unsecured offshore notes. The notes, which constitute direct and unconditional obligations of the issuer, are at all times ranked pari passu among themselves and at least pari passu with all other present and future unsecured obligations of the issuer. The outlook is stable. The proposed issuance rating is provisional and subject to our review of the final offering documents.

KEY RATING RATIONALES

Credit Strengths

Important infrastructure construction entity in GHD. ZJCD is an important infrastructure construction entity in GHD, engaged in regional project construction, land consolidation and development, trading business, building materials sales and landscape maintenance. We assess that the company's business continuity is decent in view of the strong operating exclusivity of the company's main operating business in the region. We assess that in the event of financial distress, the GHD government is willing to take necessary measures to support the company and ensure that economic development and public utilities operation in the region will not be affected.

Strong government support. GHDFB holds 100% equity in the company and is the sole shareholder and actual controlling party of the company. Over the past few years, GHD government has provided substantial support in forms of capital injection and financial subsidies to ZJCD. In terms of capital injection, in 2021-2022, GHDFB allocated RMB 0.1 billion and RMB 2.4 billion respectively as paid-in capital to the company. In 2023, the Zhengzhou Guancheng Hui District Urban Organic Renewal Center allocated RMB 1.7 billion as paid-in capital to the company. The above capital injections cumulatively increased the company's capital reserve by RMB 4.2 billion, significantly enhancing the company's capital strength. In 2021-2023, the company received government subsidies of RMB68.4 million, RMB1.1 million and RMB 9.2 million respectively. We believe that with the advancement of key projects undertaken by the company in the future, GHD government will continue to provide necessary support to the company.

GHD government maintains a stable credit profile. GHD is one of the five central urban districts of Zhengzhou City and is the commercial center of Zhengzhou. In recent years, the emerging industry chain in GHD, which is led by new-generation information technology, biomedicine, and the digital economy, has also taken shape on a certain scale, and the industrial structure has continued to optimize. In 2023, GHD achieved a regional GDP of RMB72.4 billion, a year-on-year increase of 6.9%; the general public budget revenue was RMB4.7 billion, a year-on-year increase of 4.3%, among which the proportion of tax revenue continued to increase, and the average budget surplus rate performed well.

Credit Weaknesses

Relatively high financial leverage. As of the end of 2023, the company's total interest-bearing debt amounted to RMB 9.0 billion, with a year-on-year increase of 95.1%. Due to the company's responsibility for major infrastructure projects in GHD, the company will continue to rely on further borrowing to meet its funding needs in the coming years, and the debt level is expected to continue to grow. We project that the company's debt-to-total capitalization ratio will remain above 55% in the following years. Additionally, the company has a relatively small EBITDA compared to its debt level. We calculate the company's debt-to-EBITDA ratio for 2023 as 107.9 times and the EBITDA interest coverage ratio as 0.4 times.

Low operating efficiency and tight liquidity. Due to the nature of its industry and business model, the company's operational efficiency is not high. In 2023, the company had an accounts receivable turnover of 110.2 days and an inventory turnover of 1,923.7 days. The company's inventory primarily consists of development costs related to infrastructure construction. The long construction and payment cycles of such projects result in an extended cash conversion cycle, leading to relatively weak liquidity for the company. We predict that the company's cash flow liquidity ratio for the next 12 months will be 0.7 times, and its quick ratio will be 0.3 times in 2024. The company is facing tight short-term liquidity.

RATING OUTLOOK

The stable outlook for ZJCD reflects our expectation that the GHD government’s credit profile will remain stable and the company will be able to maintain its strategic role in the development of GHD going forward.

We would consider a rating downgrade if 1) ZJCD’s ties with the GHD government loosen from current level; 2) The economic strength of the GHD government weakens substantially or its budget deficit level increases tremendously; and/or 3) ZJCD’s market position in the GHD declines significantly.

We would consider a rating upgrade if 1) The GHD government’s economy and fiscal revenue scale expands on a sustained basis; 2) ZJCD’s importance to the GHD government increases significantly; and/or 3) ZJCD’s leverage ratio and financial condition have significantly improved.

Date of Relevant Rating Committee: 21 March 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)

Corporate Issuance Rating Criteria (11 March 2022)

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