[ET Net News Agency, 14 November 2018] Moody's Investors Service said that the
Chinese government's buyback of four toll roads in Shenzhen will not affect the credit
profiles of Shenzhen International Holdings Limited (SZIH, Baa2 stable)(00152) or Shenzhen
Expressway Company Limited (SZEC, Baa2 positive)(00548).
"The government buyback was anticipated and will have limited impact on SZIH's and
SZEC's financial metrics in 2018," says Ivy Poon, a Moody's Vice President and Senior
Analyst.
Moody's explains that in late 2015, SZIH and SZEC signed a framework agreement with the
Shenzhen government, giving the government the option to decide in 2018 if it would extend
its management service arrangement with the companies to 2019 and beyond.
SZIH will likely recognize a disposal gain of RMB2.3 billion and SZEC a gain of RMB1.5
billion, with the majority of the cash payments received in 2015-16.
Consequently, the outstanding cash payments after tax total approximately RMB50-RMB100
million each for the companies. Therefore, Moody's does not expect the transactions to
show a significant impact on SZIH's and SZEC's financial profiles in 2018.
Moody's analysis is contained in its just-released report on SZIH and SZEC titled
"Shenzhen Expressway Company Limited and Shenzhen International Holdings Limited: Credit
profile unaffected by the government buyback of toll roads," and is authored by Poon.
Moody's points out, however, that the disposal of the four toll roads - Nanguang
Expressway, Yanpai Expressway, Yanba Expressway and Longda Expressway (for SZIH only) -
will reduce SZIH's and SZEC's toll road assets in the Shenzhen region, where the companies
enjoy robust traffic volumes and dominant market positions, against the backdrop of a
mature road network. (KL)