Tianjin Binhai New Area Construction & Investment Outlook Revised To Negative; 'BBB' Rating Affirmed

  • In our view, Binhai New Area's countercyclical fiscal measures to weather an economic slowdown could lead to wider deficits and rising underlying debt burden relative to revenue. This will affect BHCI, which is the primary platform for key infrastructure investment and financing in the area.
  • On April 1, 2019, S&P Global Ratings revised its rating outlook on BHCI to negative from stable.
  • At the same time, we affirmed our 'BBB' long-term issuer credit rating on BHCI and our 'BBB' long-term issue rating on the company's guaranteed senior unsecured notes. This is to reflect the strong extraordinary support BHCI will receive from the Binhai government, if needed, over the next 12 months.
HONG KONG (S&P Global Ratings) April 1, 2019—S&P Global Ratings said that it 
has taken the rating actions listed above.

We revised our outlook on Tianjin Binhai New Area Construction & Investment 
Group Co. Ltd. (BHCI) to negative to reflect our outlook on the Binhai 
government. In our view, Binhai New Area's economic slowdown is more 
structural than temporary in nature, and in line with our expectation of 
Tianjin's overall economic situation. 

Our outlook also reflects the risk that the district's countercyclical fiscal 
measures to weather an economic slowdown could lead to wider deficits and 
rising underlying debt burden relative to revenue. That said, the district's 
efforts in pushing through structural economic and state-owned enterprise 
(SOE) reforms, and its deleveraging endeavor may benefit economic prospects 
over the long run and help contain risks related to its debt burden and 
contingent liabilities.

We expect Binhai to continue benefiting from a high GDP per capita as 
Tianjin's economic hub. In addition, we anticipate that the district 
government will maintain exceptional liquidity for debt servicing, which 
mitigates risks associated with its elevated debt burden.

In our view, under a financial distress scenario, the likelihood that BHCI 
will receive extraordinary support from Binhai district government is almost 
certain. The company remains the largest and most important platform for key 
infrastructure investment and financing in Binhai New Area. BHCI's key 
responsibilities in the transportation, social housing, and other key sectors 
in Binhai carry a high level of policy importance.

The negative outlook on BHCI reflects the negative outlook on Binhai 
government. It reflects our expectation that Binhai's structural economic 
growth slowdown--combined with proactive countercyclical measures--may result 
in a sluggish revenue growth and widening budget deficits. Consequently, the 
government's tax-supported debt may continue to build up faster than its 
operating income. 

The outlook also reflects our view that the likelihood of sufficient and 
timely extraordinary government support to BHCI, if needed, will remain almost 
certain for the next 12 months.

We could downgrade BHCI if we assess that the creditworthiness of the Binhai 
government has significantly deteriorated. We could also lower the rating if 
we believe the likelihood of extraordinary government support has materially 
diminished because of a change in the government's strategies and priorities, 
or in the local government support policy. Weakened management control from 
the government, or BHCI engaging in more businesses on a commercial basis 
could also indicate declining government support and commitment. Another 
indicator could be the opening up of BHCI's core businesses under the 
government procurement agreement to other state-owned or private companies.

We believe the credit profile of the Binhai government could weaken if: (1) 
the district's budget deficit persists at beyond 15% of adjusted total 
revenue; or (2) the government fails to stabilize its debt level relative to 
revenue over the next 24 months. A large deficit combined with rising debt 
repayment will likely lead to a deterioration in liquidity coverage for debt 
service. A downward credit assessment may also come from larger-than-expected 
contingent risk due to exposure to the SOE sector.

We see limited rating upside for BHCI over the next 12 months. However, we 
could revise the outlook to stable if we assess that the creditworthiness of 
the Binhai government has materially improved. This could happen if we see 
structural improvement in Binhai's economic and fiscal profile and an 
effective de-risking of the SOE sector. Together, they could result in a 
meaningful reduction in fiscal deficits and a stabilized debt burden.

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