HONG KONG, 9 January 2025. CSPI Ratings has upgraded the global scale long-term issuer credit rating (LTICR) of Zibo Linzi District Jiuhe Finance Holding Co., Ltd. (ZBLZJH) from ‘BBB-’ to ‘BBB’, with a stable outlook. The recent adjustment is based on the increasing importance of the company to the Linzi district government. Concurrently, we withdraw the proposed issuance credit rating which we assigned in December 2023 and will no longer provide updates.
As the most important investment and financing entity, and a state-owned assets operation platform in Linzi district, the company is primarily responsible for the infrastructure construction, ore mining and public services such as heat supply in the district. Zibo City Linzi District People’s Government State-owned Assets Supervision and Administration Bureau (ZBLZSASAB) holds 100% of the company's shares, and is the actual controller of the company. ZBLZJH’s issuer credit rating is derived from a standalone credit profile (SACP) of ‘b-’ and our assessment that the Linzi district 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 Linzi district government. ZBLZJH is the most important investment and financing entity, and a state-owned assets operation platform in Linzi district, primarily responsible for the infrastructure construction, ore mining and public services such as heat supply in the district. As such, a failure in ZBLZJH’s operation will have material impact on Linzi’s development progress and hurt its economic growth. We assess that in the event of financial distress, the Linzi district government is willing to take necessary measures to support the Company and ensure that the economic development of the district is not affected.
Long-standing track record of government support. ZBLZJH received government subsidies of various types amounted to RMB862.8 million, RMB868.4 million and RMB689.4 million, respectively, in 2021, 2022 and 2023 and were more than the Company’s net profit in those three years. In addition, ZBLZJH also received capital injections from the Linzi district government to support the Company’s operation and development. Since 2023, the company has received a government capital injection of RMB651.5 million. By the end of September 2024, the company's paid-in capital will have increased to RMB955.5 million, enhancing the company's capital strength. Since 2023, in addition to providing traditional public services such as heating and water supply, the company has been approved to gradually develop wastewater treatment services. In the future, it will also provide natural gas sales to chemical enterprises in the region. It is expected that the government will further support the company's market-oriented transformation and development. The company's importance to the Linzi District government is increasingly growing.
Strong economic fundamentals of Zibo and the stable credit profile of Linzi. Zibo is a typical industrial city in Shandong Province, dominated by the energy and chemical industries, while also focusing on emerging industries such as new materials, intelligent equipment, new pharmaceuticals, and electronic information. Linzi District, located in the northeast of Zibo, is one of the important economic zones in the city. Its industrial sectors, particularly equipment manufacturing, petroleum refining, fine chemicals, and high-grade papermaking, are especially prominent. In 2023, Linzi District achieved a regional GDP of RMB91.4 billion, ranking first among all districts and counties in Zibo. In recent years, the downturn in the land market has led to fluctuations in the district's budget revenue growth; however, its overall fiscal surplus remains strong. The scale of debt in Linzi District has continued to grow, increasing pressure on budget revenues, but the overall economic scale provides strong support for its debt capacity.
Credit Weaknesses
High leverage and weak cash flow. We consider the leverage of ZBLZJH to be high, with an average gross debt-to-total capitalization ratio of 59.8% during our estimation period of 2022-26. The Company had a total debt of RMB21.0 billion by the end of 2023, which is expected to grow further due to business expansion and the continuation of ongoing projects. Moreover, ZBLZJH’s EBITDA scale is small relative to its debt level, and the Company’s weighted average debt-to-EBITDA ratio and EBITDA interest coverage ratio between 2022 and 2026 are estimated to be 9.7x and 1.4x, respectively. Besides, the long period of receivables collection for infrastructure construction projects also leads to weak cash flows from operation, with funds from operations (FFO) to debt ratio expected to be about 3-4%.
Large scale of fund lending. There are large amounts of external fund borrowings included in other payables and long-term receivables, particularly loans to private enterprises, which carry higher recovery risks. As of the end of March 2024, the company's guarantees to private enterprises amount to RMB0.3 billion, with some guaranteed parties listed as dishonest executors, resulting in considerable contingent liability risks for the company.
RATING OUTLOOK
The Rating Outlook is Stable, which reflects our expectation that ZBLZJH is able to maintain its strategic role in the development of Linzi going forward.
We would consider a rating downgrade if 1）ZBLZJH’s ties with the Linzi district government loosen from current level; 2）The fiscal strength of the Linzi district government weakens substantially or its budget surplus rate drops tremendously; and/or 3）ZBLZJH’s business connection with the Linzi district government weakens, and its market position in the state-owned asset management and public service sectors in Linzi declines significantly.
We would consider a rating upgrade if 1) The Linzi district government’s economic and fiscal revenue scale improves on a sustained basis; 2）ZBLZJH’s importance to the Linzi district government increases significantly; and/or 3）There is substantial improvement in ZBLZJH’s leverage and financial profile.
ANALYST CONTACTS
Primary Analyst
Tingting Qiao
+852 3615 8339
tingting.qiao@cspi-ratings.com
Secondary Analyst
Stella Shi
+86 755 8287 2106
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: 24 December 2024
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)
DISCLAIMER
Solicited ratings – disclosed and results not affected
CSPI Credit Ratings Company Limited (“CSPI Ratings”, “the Company”, “we”, “us”, “our”) publishes credit ratings and reports based on the established methodologies and in compliance with the rating process. For more information on policies, procedures, and methodologies, please refer to the Company’s website www.cspi-ratings.com. The Company reserves the right to amend, change, remove, publish any information on its website without prior notice and at its sole discretion.
All credit ratings and reports are subject to disclaimers and limitations. CREDIT RATINGS ARE NOT FINANCIAL OR INVESTMENT ADVICE AND MUST NOT BE CONSIDERED AS A RECOMMENDATION TO BUY, SELL OR HOLD ANY SECURITIES AND DO NOT ADDRESS/REFLECT MARKET VALUE OF ANY SECURITIES. USERS OF CREDIT RATINGS ARE EXPECTED TO BE TRAINED FOR INDEPENDENT ASSESSMENT OF INVESTMENT AND BUSINESS DECISIONS.
CREDIT RATINGS ADDRESS ONLY CREDIT RISK. THE COMPANY DEFINES THE CREDIT RISK AS THE RISK THAT THE RATED ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS MUST NOT BE CONSIDERED AS FACTS OF A SPECIFIC DEFAULT PROBABILITY OR AS A PREDICTIVE MEASURE OF A DEFAULT PROBABILITY. Credit ratings constitute the Company’s forward-looking opinion of the credit rating committee and include predictions about future events which by definition cannot be validated as facts.
For the purpose of the rating process, the Company obtains sufficient quality factual information from sources which are believed by the Company to be reliable and accurate. The Company does not perform an audit and undertakes no duty of due diligence or third-party verification of any information it uses during the rating process. The issuer and its advisors are ultimately responsible for the accuracy of the information provided for the rating process. The Company had access to the accounts and other relevant internal documents of the rated entity or its related party. The Company has examined the quality of information used in the rating process in accordance with established process and it is satisfied with the quality of information used.
Users of the Company’s credit ratings shall refer to the rating symbols and definitions published on the Company’s website. Credit ratings with the same rating symbol may not fully reflect all small differences in the degrees of risk, because credit ratings are relative measures of the credit risk.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS OR COMPLETENESS OF ANY INFORMATION GIVEN OR MADE BY THE COMPANY IN ANY FORM OR MANNER. In no event shall the Company, its directors, shareholders, employees, representatives be liable to any party for any damages, expenses, fees, or losses in connection with any use of the information published by the Company.
The Company reserves the right to take any rating action for any reasons the Company deems sufficient at any time and in its sole discretion. The publication and maintenance of credit ratings are subject to availability of sufficient information.
The Company may receive compensation for its credit ratings, normally from issuers, underwriters or obligors. The information about the Company’s fee schedule can be provided upon the request.
The rated entity participated in the rating process. The credit rating has been disclosed to the rated entity or to its related party and, following such disclosure, the credit rating result has not been amended before being issued.
The Company reserves the right to disseminate its credit ratings and reports through its website, the Company’s social media pages and authorised third parties. No content published by the Company may be modified, reproduced, transferred, distributed or reverse engineered in any form by any means without the prior written consent of the Company.
The Company’s credit ratings and reports are not intended for distribution to, or use by, any person in a jurisdiction where such usage would infringe the law. If in doubts, please consult the relevant regulatory body or professional advisor and ensure compliance with applicable laws and regulations.
In the event of any dispute arising out of or in relation to our credit ratings and reports, the Company shall have absolute discretion in all matters relating to resolving the dispute, including but not limited to the interpretation of disclaimers and policies.
Copyright © 2025 by CSPI Credit Ratings Company Limited All rights reserved.