Shenzhen Investment Holdings Co. Ltd. Assigned 'A' Rating; Outlook Stable
27-Aug-2018 10:17 EDT
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SIHC has a sizable investment portfolio with high liquidity and credit quality, and we expect the company's loan-to-value (LTV) ratio to remain below 30% despite its plans to expand the portfolio; SIHC's high asset concentration tempers these strengths. We also see a very high likelihood of extraordinary support from the Shenzhen government to SIHC if needed. We are assigning our 'A' long-term issuer credit rating to SIHC, a Shenzhen-based investment holding company. The stable outlook reflects our expectation that SIHC's investment portfolio will remain highly liquid and the LTV ratio will remain below 30% over the next 24 months.
HONG KONG (S&P Global Ratings) Aug. 27, 2018--S&P Global Ratings today assigned its 'A' long-term issuer credit rating to Shenzhen Investment Holdings Co. Ltd. (SIHC). The outlook is stable.
SIHC is a Shenzhen-based investment holding company that is 100%-owned by the Shenzhen government.
The rating on SIHC reflects the company's sizable investment portfolio with high liquidity and credit quality. We expect SIHC's LTV ratio to remain below 30%, despite the company's plan to expand its portfolio over the next two years. SIHC's high asset concentration tempers these strengths.
The rating on SIHC also reflects our view of a very high likelihood that the company would receive extraordinary support from the Shenzhen government, if needed, based on SIHC's:
Very important role to the government. SIHC acts as a platform for the Shenzhen government for asset holding and management, and for financing and capital market operations. SIHC is also an important infrastructure and industrial investment platform for the government. Many of SIHC's business operations correspond to very important economic, political, and social objectives of the government. We believe SIHC's roles cannot be easily replaced by other private entities or even state-owned enterprises (SOEs) that the Shenzhen government controls; and Very strong link to the government. The Shenzhen government owns 100% of SIHC, and we believe the government will keep its strong and stable ownership over the next five years. The government closely monitors and supervises the strategy and financial performance of SIHC through its appointed board and senior management.
We expect SIHC to remain a major asset holder and manager on behalf of the Shenzhen government. Since SIHC's establishment in 2004, the Shenzhen government has transferred its holdings in some important Chinese SOEs to SIHC. In addition, the Shenzhen government mandates SIHC to participate on its behalf in equity placements and offerings of SOEs to maintain a stable shareholding. For example, SIHC invested in the H share offerings of Guotai Junan Securities Co. in 2017.
In our view, SIHC is likely to remain an important infrastructure and industrial investment platform for Shenzhen City. For example, it is mandated to develop "Shenzhen Bay Science Eco-Technology Park." In this project, SIHC is a builder of both the infrastructure and ecosystem. The company aims to attract technology and financial services providers and also invest in them. These investments have high strategic value to the government, and SIHC has received direct and indirect support from the government.
SIHC is likely to remain an investment holding company in view of its strategic objective, as mandated by the government. The company has limited operations of its own.
We expect SIHC's investment portfolio to remain highly liquid and have high credit quality. Listed assets comprise more than 70% of the company's asset value. Its key listed investees include Ping An Insurance (Group) Co. of China, Ltd., Guotai Junan Securities Co. Ltd., and Shenzhen International Holdings.
The lack of asset diversification should continue to constrain SIHC's credit profile over the next 12-24 months. Ping An contributes to 44% of SIHC's portfolio value as of July 2018, with an asset value of Chinese renminbi (RMB) 50 billion-RMB60 billion. We expect SIHC's holding in Ping An to be stable.
We believe SIHC's LTV ratio would be below 30% in the next 12-24 months despite the company's planned investment of RMB8 billion-RMB10 billion per year in 2018-2020. The company has an LTV ratio of around 15% as of 2017, with RMB19 billion in net debt against a portfolio value of about RMB122 billion. The ratio could increase moderately because SIHC is likely to partly fund its investments in technology and financial segments through debt.
We view SIHC favorably when compared with investment holding companies with similar ratings because we believe the company will continue to receive ongoing support from the Shenzhen government. Such support will likely be in the form of capital injections and asset transfers. We reflect this factor in our positive comparable rating analysis.
The stable outlook reflects our view that SIHC's investment portfolio will remain highly liquid and its LTV ratio will remain below 30% over the next 24 months. This will provide buffers against the company's asset concentration risk. In addition, we see a very high likelihood of the Shenzhen government providing support to SIHC when needed. We also expect the credit profile of the Shenzhen government to remain stable.
We could lower the rating on SIHC if the company's LTV ratio is consistently higher than 30%. This could be driven by overly aggressive investments or a significant decline in portfolio value.
We could also lower the rating if the Shenzhen government develops another platform to perform similar functions as SIHC, or the government substantially reduces its ownership in SIHC. We could also downgrade SIHC if the credit profile of the Shenzhen government deteriorates.
We could upgrade SIHC if the company becomes more conservative in its financial policy and lowers its LTV ratio to consistently below 10%. We would then revise our assessment of SIHC's stand-alone credit profile to 'a' or above. However, we view this scenario as remote. It could materialize if the company reduces its debt, its portfolio value increases significantly, or it receives substantial asset or capital injections from the Shenzhen government.
We could upgrade SIHC if we assess that the credit profile of the Shenzhen government has improved.
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