HONG KONG, 8 April 2025. CSPI Ratings has upgraded the global scale long-term issuer credit rating (LTICR) of Suining Investment Group Co., Ltd. (SIG) from ‘BBB-’ to ‘BBB’, with a stable outlook. The recent adjustment is based on the enhanced credit profile of the Suining municipal government, which is attributed to factors such as economic growth acceleration, slowing debt growth, and increased liquidity.
As the largest state-owned enterprise in Suining city, the company undertakes the land development, municipal infrastructure construction, public transportation, and water services. The Suining State-owned Assets Supervision and Administration Commission (referred to as "Suining SASAC") holds 100% of the company's shares, making it the sole shareholder and actual controller of the company. SIG’s issuer credit rating is derived from a standalone credit profile (SACP) of ‘b-’ and our assessment that the Suining city government has an extremely strong willingness to provide external support to the company in the event of financial distress.
KEY RATING RATIONALES
Credit Strengths
Strategically important to the Suining municipal government. SIG is responsible for infrastructure construction and land consolidation within Suining, while also undertaking public utility functions such as grain storage, public transportation, and water services in the area. In recent years, the company has pursued market-oriented transformation, venturing into fields such as sand and gravel sales, leasing, and textile sales. We believe the stability and sustainability of the company's operations are strong. As the most important participant in urban construction in Suining and a key player in state-owned asset operations, the company is deeply involved in the region's economic development and urbanization, presenting good prospects for growth. We believe that if the company faces operational difficulties, the Suining 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.
Strong government support. The company is the most important entity for infrastructure investment and financing in Suining, with the Suining SASAC directly holding 100% of its shares, making it the sole shareholder and actual controller. In recent years, the company has received strong support from the government in terms of financial subsidies and asset injections. In 2022, 2023, and from January to September 2024, the company received financial subsidies of RMB2.3 billion, RMB2.7 billion, and RMB1.5 billion, respectively, effectively enhancing the company's profitability. Since 2023, the government has transferred large-scale sand mining concessions to the company at no cost, improving its capital strength. By the end of September 2024, the company's capital reserve increased from RMB34.2 billion at the end of 2023 to RMB37.0 billion. Given that the senior management of the company is directly appointed by the Suining municipal government and is subject to its evaluation, we believe the company's operations are highly controlled by the government. Furthermore, we believe that any default by the company would lead to questions from the public and market participants regarding the credibility and reputation of the Suining municipal government itself. Therefore, the Suining municipal government has a strong incentive to continue providing support to the company.
The strong economic fundamentals of Sichuan Province and the stable credit profile of the Suining municipal government. Sichuan Province is rich in resources, has a solid industrial development foundation, and maintains rapid economic growth. In 2024, the province is projected to achieve a regional GDP of RMB6.5 trillion, with a growth rate of 5.7%. Given the robust development of high-tech industry investments and the balanced complementarity between its industrial and service sectors, along with Sichuan's strategic hub position in promoting a new era of western development and various favorable policies in the Chengdu-Chongqing economic circle, we hold an optimistic view on its long-term economic development prospects. Suining's economic growth rate remains high, with the city's regional GDP expected to reach RMB187.0 billion in 2024, representing a year-on-year increase of 6.6%, demonstrating strong economic momentum. Although the overall debt scale of Suining remains high, thanks to rapid economic growth and the government's increasing emphasis on debt management, we anticipate that the pace of debt expansion in the coming years will slow relative to economic growth. Additionally, we estimate that the budget surplus rate of the Suining municipal government for 2024 will be -26.6%, a significant easing compared to the previous year, indicating a healthier liquidity situation than in the past two years.
Credit Weaknesses
Relatively high financial leverage. As of the end of 2023, the company's interest-bearing debt was RMB44.2 billion, a year-on-year increase of 15.6%. Due to the company's ongoing expansion plans in infrastructure and self-operated businesses, the debt level is likely to continue rising in the coming years. During our forecast period from 2022 to 2026, the weighted average debt-to-capital ratio is expected to be 55.4%, indicating a high level of leverage. Additionally, the company's EBITDA is relatively small compared to its debt level; we estimate that the weighted average debt-to-EBITDA ratio and the average EBITDA interest coverage ratio during 2022 to 2026 will be 15.1x and 1.1x, respectively. The long accounts receivable collection period for the company's infrastructure projects also contributes to weak operating cash flow, and we expect the ratio of operating funds to debt will be in the range of 3-4%.
Weak profitability and low operating efficiency. Due to the industry and business model, the company's profit margins are not high, and operational efficiency is low. We estimate that during the period from 2022 to 2026, the weighted average EBITDA margin and return on capital will be 46.6% and 3.2%, respectively. On the other hand, due to slow operational turnover and limited operating cash flow, the company faces a significant amount of maturing debt in the next one to two years, relying on refinancing to maintain cash flow balance, resulting in relatively tight liquidity.
RATING OUTLOOK
The stable outlook for SIG reflects our expectation that the Suining municipal government’s credit profile will remain stable and the company will be able to maintain its strategic role in the development of Suining city going forward.
We would consider a rating downgrade if 1）SIG’s ties with Suining government loosen from current level; 2）Suining’s economic growth decreases considerably and the government’s liquidity weakens massively; and/or 3) SIG’s business connection with the Suining city government weakening, and its market position in the infrastructure construction and public service sectors in Suining declining significantly.
We would consider a rating upgrade if 1) Suining government’s leverage is reduced greatly, or its economic and fiscal revenue scale improve on a sustained basis; 2）The company’s importance to Suining government promotes significantly.
ANALYST CONTACTS
Primary Analyst
Tingting Qiao
+852 3615 8339
tingting.qiao@cspi-ratings.com
Secondary Analyst
Siqi Lin
+86 755 8321 0225
siqi.lin@cspi-ratings.com
Committee Chair
Winnie Guo
+852 3615 8341
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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