巴黎人娱乐城

巴黎人娱乐城 - Hong Kong/Beijing - 26 Sep 2024: 巴黎人娱乐城 has affirmed Meixihu Investment (Changsha) Co., Ltd.'s (MXH) Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BBB'. The Outlook is Stable.

巴黎人娱乐城 views MXH as a subsidiary of a policy-mission government-related entity (GRE), Hunan XiangJiang New Area Development Group Co., Ltd. (XiangJiang Group, BBB/Stable), and has assessed MXH's ratings under our Parent and Subsidiary Linkage Rating Criteria. MXH's 'b' Standalone Credit Profile (SCP) is assessed under our Public Policy Revenue-Supported Entities Rating Criteria.

KEY RATING DRIVERS

Parent-Subsidiary Relationship

MXH is wholly owned by XiangJiang Group, which consolidates the subsidiary's financials. 巴黎人娱乐城 believes government support is likely to be extended to MXH, as both MXH and the parent have public-service roles. We assess that they have a parent-subsidiary relationship, while the parent has stronger credit quality.

'High' Legal Incentive: XiangJiang Group guaranteed CNY2.2 billion of MXH's total debt as of June 2024, accounting for 76% of its total debt. The parent has continuously provided guarantees to MXH, with a guarantee ratio of over 50% from 2019 to 2023. XiangJiang Group has stated that it will continue to provide guarantees to MXH while the subsidiary is rated to ensure that the ratio remains over 50%. The cross-acceleration clause of the group's offshore bond covers its subsidiaries, including MXH, but the offshore bond accounts for only 5.3% of the group's total debt.

'High' Strategic Incentive: MXH's financial contribution to XiangJiang Group is 'High', as it accounted for 19% of the parent's total assets and 52% of net profit as of December 2023. MXH's competitive advantage is 'High', as it assists the parent in carrying out the Xiangjiang New Area policy mandate. The Meixi Lake area, positioned as the centre of Xiangjiang New Area, has attracted multinational companies, including Tencent Holdings Limited (A+/Negative). The Xiangjiang New Area Management Committee and the parent company's office are also located in the Meixi Lake Area.

巴黎人娱乐城 assesses MXH's growth potential as 'Medium'. We expect MXH to maintain its current financial contribution to XiangJiang Group, given the company's consistent policy mandate from the sponsoring government.

'High' Operational Incentive: 巴黎人娱乐城 assesses the management and brand overlap of MXH and XiangJiang Group as 'High'. The parent's operational oversight and financial control are tight, and the group uses a centralised cash management approach. We believe management decisions are fully integrated, since all investing and financing activities need to be approved by XiangJiang Group. The group appoints all of MXH's directors, supervisors and key managers, except for the employee director. There are also some management overlaps within the group.

We assess operational synergies as 'Medium'. MXH's operations are integral to XiangJiang Group's core business, as they both engage in urban development. Their main projects, Meixi Lake Area Phase I and Phase II, have a long construction time horizon, which would make it difficult to find substitutes in the short term. However, XiangJiang Group also controls other urban development GREs, which would allow the parent to arrange for substitutes gradually. The parent also has its own financing resources to carry out the projects directly, if needed.

Standalone Credit Profile

The 'b' SCP is derived from a 'Low Midrange' risk profile and 'bb' financial profile. We position MXH's SCP in the middle of the 'b' category by factoring in its net adjusted debt/EBITDA and liquidity coverage ratio in comparison with that of peers.

Risk Profile: 'Low midrange'

巴黎人娱乐城 assesses MXH's risk profile as 'Low Midrange', reflecting a combination of risk assessments.

Revenue Risk: 'Weaker'

We assess revenue risk as 'Weaker' due to the company's volatile revenue and dependence on the government's land supply plans and pricing. The factor assessment considers 'Midrange' demand characteristics and 'Weaker' pricing characteristics. MXH's revenue, which is mainly from primary land development, is subject to the government's urban development plans, leading to volatility. However, demand should be supported by the region's positive economic and population growth. The company's pricing power is limited, as prices are mainly set by the government.

Expenditure Risk: 'Midrange'

The assessment reflects 'Midrange' operating costs and supply risk, and investment planning. MXH has the ability to control its operating costs, and 巴黎人娱乐城 expects its cost structure to remain largely stable. It also has established relationships with existing suppliers, while the supply of resources and labour is adequate, considering Changsha's solid economic growth prospects. The company's major investment plans are in accordance with the objectives set by the municipal government, which also monitors developments closely during the investment phase.

Liabilities and Liquidity Risk: 'Midrange'

The assessment is based on 'Midrange' debt and liquidity characteristics. The company's debt maturity is mostly in line with the usual construction periods of land development projects. Its weighted-average life of debt was 3.1 years at end-2023, with short-term debt accounting for 19.4% of total debt at end-2023. We believe MXH has stable access to capital markets and banks to refinance its existing debt. It also has CNY7.9 billion in unused credit facilities from various financial institutions and around CNY198 million in unrestricted cash on hand for debt servicing.

Financial Profile

We expect MXH's leverage (net debt/巴黎人娱乐城-calculated EBITDA) to increase to around 12x on average in the next five years. The leverage forecast reflects the company's rising debt from capex for its land development projects. The assessment is consistent with that of other 巴黎人娱乐城-rated Chinese urban developers, which tend to be capital intensive and reliant on refinancing and government support. MXH's weak financial profile and funding pressure are mitigated by continued government support, the company's capital-market access, and its relationships with local and national financial institutions.

Derivation Summary

MXH shares a strong linkage with its parent, XiangJiang Group, and its ratings are based on our assessment of a "stronger parent" credit quality under 巴黎人娱乐城's Parent and Subsidiary Linkage Rating Criteria. We assess that the parent has 'High' legal, strategic and operational incentives to support MXH. This leads to MXH's ratings being equalised with that of the parent.

Issuer Profile

MXH is the only GRE responsible for the urban development of the Meixi Lake Area of Xiangjiang New Area in Changsha municipality. The company is engaged mainly in primary land development. It is the largest subsidiary under XiangJiang Group by net profit.

Key Assumptions

巴黎人娱乐城's rating case is a "through-the-cycle" scenario, which incorporates a combination of revenue, cost and financial risk stresses. It is based on 2019-2023 historical figures and 2024-2028 scenario assumptions:

- MXH to retain its key policy role in the urban development of Meixi Lake in the Xiangjiang New Area, focusing on land development. We do not expect additional asset injections to alter the revenue profile significantly;

- Average operating revenue growth of around 3.6% a year in 2024-2028, driven by the delivery and completion schedule of its land development projects;

- Average operating expenditure growth of about 4.0% a year in 2024-2028 on a steady increase in recurring expenditure, and costs that fluctuate with revenue growth;

- Average adjusted debt growth of around 7%-8% in light of the company's investment plan.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

- Significant weakening of XiangJiang Group's legal incentive to support MXH, including less debt guaranteed by XiangJiang Group;

- Dilution in the parent's ownership that results in insufficient control over MXH may lead to a reassessment of the linkage between the parent and subsidiary;

- Negative rating action on XiangJiang Group would lead to a downgrade of MXH, as the subsidiary's ratings are derived from those of XiangJiang Group.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

- Positive rating action on XiangJiang Group would lead to an upgrade of MXH, as the subsidiary's ratings are derived from those of XiangJiang Group.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. 巴黎人娱乐城's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on 巴黎人娱乐城's ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.

References for Substantially Material Source Cited as Key Driver Rating

The principal sources of information used in the analysis are described in the Applicable Criteria.

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