HONG KONG, 15 April 2025. CSPI Ratings has upgraded the global scale long-term issuer credit rating (LTICR) of Ji’an Chengtou Holding Group Co., Ltd. (JACH) from ‘BBB’ to ‘BBB+’, with a stable outlook. This upgrade is based on the enhanced external support for the company. In recent years, Ji’an City has experienced accelerated economic growth and industrial transformation. At the same time, the central government has strengthened the management of local government debt, and the ‘Package of Debt Resolution’ policies have been implemented, resulting in a reduction of liquidity risk for local governments. Consequently, the credit strength of the Ji’an municipal government has improved, thereby enhancing its capacity for support.
JACH is the core financing platform in Ji'an City and the most important entity for infrastructure investment and financing construction. It represents the Ji'an City government in exercising functions such as land development and consolidation, urban infrastructure and affordable housing construction, as well as public services. The State-owned Assets Supervision and Administration Commission of Ji'an City (Ji'an SASAC) holds 100% of the equity in JACH, making it the sole shareholder and actual controller of the company. JACH’s issuer credit rating is derived from a standalone credit profile (SACP) of ‘b’ and our assessment that the Ji’an municipal government has an extremely strong willingness to provide external support to the company in the event of financial distress.
KEY RATING RATIONALES
Credit Strengths
The most important entity for infrastructure investment and financing construction in Ji'an City. JACH is responsible for developing municipal infrastructure and affordable housing construction projects in Ji'an City and the Jitai Corridor, as well as managing land development and public services within the region. In addition, the company is also involved in the sale of commercial housing and concrete. We believe that the stability and sustainability of the company’s operations are strong. As a major participant in urban construction and the primary operator of state-owned assets in Ji'an City, the company is deeply involved in regional economic development and urbanisation, presenting a promising outlook for growth. We believe that if the company faces operational difficulties, the Ji’an municipal government will take necessary measures to ensure its sustainable development and provide necessary support in the event of financial challenges, so as to ensure that the region's economic development is not adversely affected.
The Ji'an municipal government maintains close communication and provides ongoing financial support. JACH is the most core first-level holding platform in Ji'an City, with the Ji'an SASAC directly holding 100% of the company's equity, making it the sole shareholder and actual controller. In recent years, the Ji'an municipal government has provided strong support for the company’s development through financial subsidies and asset injections. In 2022, and 2023, and during the period from January to September 2024, the company received financial subsidies of RMB420 million, RMB410 million, and RMB370 million, respectively, effectively enhancing the company's profit levels. Additionally, over the past three years, the company has also received capital, equity, and land assets allocated by the Ji'an municipal government, strengthening its capital base. As of the end of September 2024, the company's capital reserve stands at RMB46.6 billion. Furthermore, as a direct subordinate enterprise of the Ji'an SASAC, the company’s senior management personnel are appointed by the Ji'an SASAC and are subject to its evaluation. We believe that the Ji'an municipal government has a high level of control and influence over the company’s operations. If JACH were to default, it could have significant consequences for both the economic development and the creditworthiness of the Ji'an municipal government.
The strong economic foundation of Jiangxi Province, along with the stable credit profile of the Ji'an municipal government. Benefiting from its unique geographic advantages, abundant resources, and well-rounded industrial base, Jiangxi Province's economy exhibits robust development momentum. In 2024, Jiangxi Province had a GDP of RMB3.4 trillion, representing a growth of 5.1% compared to the previous year. The province has entered the later stage of industrialization and has continuously optimized its industrial structure in recent years. Additionally, it actively accommodates the transfer of industries from developed countries and economically developed regions along the eastern coast. With strong national support for the revitalization of Jiangxi's revolutionary old districts and the promotion of rise in central regions, we hold an optimistic view of the long-term economic prospects of Jiangxi Province. Ji'an is a prefecture-level city located in the central region of Jiangxi Province, situated in the core area connecting Hong Kong and Guangdong to the Central Plains. Supported by the rapidly growing industrial sector, recovering consumption, and vibrant fixed asset investment in Ji'an City, the local economy has developed rapidly over the past years. In 2024, Ji'an had a GDP of RMB291.7 billion, with a year-on-year growth of 5.7%, consistently exceeding both the provincial and national average growth rates. Furthermore, stable and substantial subsidy revenues from high-level governments strongly support the growth of Ji'an City's fiscal budgetary revenues. The city's fiscal deposits are moderate in scale, and the overall liquidity situation is healthy.
Credit Weaknesses
Relatively high financial leverage. As of the end of 2023, the company's interest-bearing debt stands at RMB50.4 billion. As the company continues to undertake the financing and construction of major infrastructure and affordable housing projects in the central urban area and High-speed Rail New Town of Ji'an City, the debt scale is expected to continue increasing in the coming years. We estimate that the gross debt-to-capitalization ratio for 2023 is 52.7%, and it is projected to remain at a high level of over 50% in the coming years. Furthermore, the company's EBITDA is relatively small compared to its debt scale; we estimate that the weighted average debt-to-EBITDA ratio and the EBITDA interest coverage ratio for the company during the period from 2022 to 2026 will be 26.3x and 0.9x, respectively. Overall, we expect the company's leverage to remain high in the coming years, which will exert certain pressure on its cash flow and repayment capacity.
Low capital turnover efficiency. Due to the industry and business model, the company's operation efficiency is not high. In 2023, the company's accounts receivable turnover days and inventory turnover days were 707 days and 4,810 days, respectively. As of the end of 2023, the company's inventory scale is RMB58.1 billion, which is 10.2 times its operating revenue for that year. The company’s inventory primarily consists of development costs arising from engineering construction and land consolidation projects, which have longer construction and return cycles, resulting in low capital turnover efficiency. On the other hand, the extended capital turnover cycle weakens the company’s operating cash flow, limiting its ability to support its debt. Considering the scale of debt due in the coming year, we believe the company’s cash flow situation is average.
RATING OUTLOOK
The stable outlook for JACH reflects our expectation that the Ji’an municipal government’s credit profile will remain stable and the company will be able to continue playing a strategic role in the city’s development on the back of extremely strong support from the Ji’an municipal government.
We would consider downgrading JACH’s issuer credit rating if its credit profile worsens substantially, which could be caused by 1) Ji’an’s economic growth decreases considerably and the government’s liquidity weakens massively; 2) JACH’s ties with Ji’an municipal government loosen from current level; and/or 3) JACH’s business connections with the Ji’an municipal government weaken, and its market position in the infrastructure construction and state-owned assets operation sectors in Ji’an City decline significantly.
We would consider upgrading JACH’s issuer credit rating if its credit profile improves substantially, which could be caused by 1) Ji’an municipal government’s leverage is reduced greatly, or its fiscal deficit pressure alleviates on a notable basis; and/or 2) JACH’s importance to the Ji’an municipal government increases significantly.
ANALYST CONTACTS
Primary Analyst
Jameson Zuo
+852 3615 8341
Secondary Analyst
Siqi Lin
+86 755 8321 0225
siqi.lin@cspi-ratings.com
Committee Chair
Winnie Guo
+852 3615 8344
winnie.guo@cspi-ratings.com
Media Contact
Rating Services Contact
Allen Wei
+852 3615 8324
Date of Relevant Rating Committee: 31 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)
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