Moody's ups outlook for 22 government-related issuers to stable

Rating agency Moody's changed from negative to stable the outlooks on 22 Chinese government-related issuers and rated GRI subsidiaries.

Also, analysts said they see evidence that the government's State-owned enterprise reform efforts will not result in less support for SOE entities in essential public services and strategic sectors in the medium term.

During a press briefing on Tuesday in Shanghai, analysts said that ratings outlook changes are driven by the support level of policy makers, the government's ability to provide support directly or indirectly and the companies' own credit profiles.

In March 2016, Moody's changed the outlooks of these entities to negative due to concern that the continuing growth in the contingent liabilities of the government's balance sheet could result in support being a lower priority and reduced over time for all SOEs.

However, there is now evidence suggesting the contrary. That is, the government's reform efforts will not result in a diminution of support for the GRIs which had their ratings outlooks changed today to stable, according to Gary Lau, a Moody's Managing Director.

For example, in September, the Ministry of Finance and the State-Owned Assets Supervision and Administration Commission issued a joint document stating that the government will concentrate its investments and support for SOEs on those that focus on national security and essential public services, aiming to boost standards and economic development.

"What policy makers have said and done is more 'visible' and tangible to analysts who can see solid evidence that policy support for companies in these sectors is unlikely to change over the medium term," said Hu Kai, senior vice-president of Moody's Investors Service.

These 22 entities, which include China State Construction Engineering Corporation, China Railway Group Ltd, CRRC Zhuzhou Locomotive Co Ltd, and Shanghai Electric Co Ltd, all fall within the broad categories for which the government remains supportive and are seen as important in assisting the implementation of strategic national policy goals.

On the other hand, there has been a gradual reduction in support for less prominent entities operating in commercial industries, particularly those suffering from overcapacity and fierce competition, namely coal, steel, metals, mining and chemicals, said analysts.

Seven GRI default cases reviewed by Moody's in the last 12 months all fell in these categories, said Clement Wong, associate managing director with Moody's Investors Services.

However, as China is reducing overcapacities in certain commercial industries such as coal-mining, steelmaking and chemicals in an "orderly" manner, it is unlikely for the market to see a big number of defaults of government-related issuers in these industries in the near future, according to Hu.