Pengyuan International Assigns ‘A/A+’ Ratings to the Provincial Government of Hebei; Outlooks Stable


12 Jan 2021

    HONG KONG, 12 January 2021. Pengyuan International has assigned its long-term global scale foreign-currency issuer credit rating (ICR) of A and local-currency ICR of A+ to the Hebei provincial government, reflecting Hebei’s below average economic development and rapidly growing budgetary revenue, despite of a widening deficit. The outlook of the ratings is stable.

    Hebei is a coastal province of China (AA/AA+, Stable) and is part of the North China region. Hebei surrounds Beijing, the national capital and borders the provinces of Liaoning to the northeast and Shanxi to the west. It covers an area of 188,800 square kilometres, accounting for about 2% of China’s land area. The province has a population of 75.9 million at the end of 2019, equivalent to 5.4% of the country’s population. The province has served as an industrial supply base in the country in terms of iron and steel, cement and glass manufacturing.

    CREDIT SUMMARY

    The regional strategies of China involving Xiong’an New District and Coordinated Development of the Beijing-Tianjin-Hebei Region are benefiting Hebei’s economy. Hebei’s economic performance has been mediocre over the past few years, with its GDP per capita at RMB46,348 (USD6,727) in 2019, merely higher than five of its peers in the country. The iron and steel industry has been the key contributor to the province’s GDP, but the sector has seen several years of capacity cuts and restructuring. We believe this segment has become more resilient and robust than before, as Hebei’s GDP growth was 6.8% in 2019 and 1.5% year on year in the first three quarters of 2020. Since Hebei has not been significantly affected by the coronavirus pandemic and with the supportive national strategies in place, we believe the long-term vision of the province’s economy should be positive.

    Hebei has seen an aggravating deficit pressure in recent years. Since the Xiong’an New District strategy was rolled out in 2017, the budgetary expenditure of Hebei has started increasing rapidly, with a widening deficit subsequently. To cushion the impact of the coronavirus pandemic, the province’s budgetary expenditure has remained intense in 2020. However, the general public budgetary revenue of the province has been hampered by the pandemic with only 0.2% year on year uptick in the first three quarters. As a result, the budgetary balance to revenue ratio of the province is expected to plunge to -32% this year, pointing to an all-time high deficit level of the province.

    Hebei’s Debt burden is not heavy yet, but it is exacerbating rapidly. We estimate the province had registered a moderate debt to revenue ratio of 233% at the end of 2019. However, the province must leverage on a vast amount of additional borrowing to meet its widening deficit in 2020. The central government has lifted the province’s direct debt ceiling by a large degree in recent years to boost the province’s capacity of raising debts. Hebei’s debt ceiling has seen a year-on-year increase of 20% and more than 30% in 2019 and 2020 respectively. Therefore, we project the debt to revenue ratio of Hebei to rise to 278% this year.

    The province’s liquidity condition is well bolstered by the central government’s fiscal help and measures. The provincial government possesses a decent fiscal deposit of RMB167.6 billion at the end of 2019, which has remained steady over the previous years. In addition, the province’s strong financing capability has been supported by the central government, meaning that the provincial government’s liquidity source should be sufficient to meet its ballooning deficit and maturing debts over the next two years.

    ANALYST CONTACTS

    Primary Analyst

    Jameson Zuo

    +852 3615 8341

    jameson.zuo@pyrating.com

    Secondary Analyst

    Lisa Hu

    +86 755 8321 0225

    li.hu@pyrating.com

    Committee Chair

    Ke Chen

    +852 3615 8316

    ke.chen@pyrating.com

    MEDIA ENQUIRIES 

    Ms. Charley Lui 

    Direct+852 3615 8296

    charley.lui@pyrating.com

    RATING SERVICES ENQUIRIES

    Mr. Allen Wei

    Direct+852 3615 8324

    allen.wei@pyrating.com

    Date of Relevant Rating Committee: 21-Dec-2020

    Additional information is available on www.pyrating.com

    Related Criteria

    Chinese Local Government Rating Criteria (29 June 2018)

    ***********************************************

    DISCLAIMER

    Unsolicited ratings – non-participative rating – not disclosed

    Pengyuan Credit Rating (Hong Kong) Company Ltd (“Pengyuan International”, “Pengyuan”, “the Company”, “we”, “us”, “our”) publishes credit ratings and reports based on the established methodologies and in compliance with the rating process. For more information on policies, procedures, and methodologies, please refer to the Company’s website www.pyrating.com. The Company reserves the right to amend, change, remove, publish any information on its website without prior notice and at its sole discretion.

    All credit ratings and reports are subject to disclaimers and limitations. CREDIT RATINGS ARE NOT FINANCIAL OR INVESTMENT ADVICE AND MUST NOT BE CONSIDERED AS A RECOMMENDATION TO BUY, SELL OR HOLD ANY SECURITIES AND DO NOT ADDRESS/REFLECT MARKET VALUE OF ANY SECURITIES. USERS OF CREDIT RATINGS ARE EXPECTED TO BE TRAINED FOR INDEPENDENT ASSESSMENT OF INVESTMENT AND BUSINESS DECISIONS.

    CREDIT RATINGS ADDRESS ONLY CREDIT RISK. THE COMPANY DEFINES THE CREDIT RISK AS THE RISK THAT THE RATED ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS MUST NOT BE CONSIDERED AS FACTS OF A SPECIFIC DEFAULT PROBABILITY OR AS A PREDICTIVE MEASURE OF A DEFAULT PROBABILITY. Credit ratings constitute the Company’s forward-looking opinion of the credit rating committee and include predictions about future events which by definition cannot be validated as facts.

    For the purpose of the rating process, the Company obtains sufficient quality factual information from sources which are believed by the Company to be reliable and accurate. The Company does not perform an audit and undertakes no duty of due diligence or third-party verification of any information it uses during the rating process. The issuer and its advisors are ultimately responsible for the accuracy of the information provided for the rating process.

    Users of the Company’s credit ratings shall refer to the rating symbols and definitions published on the Company’s website. Credit ratings with the same rating symbol may not fully reflect all small differences in the degrees of risk, because credit ratings are relative measures of the credit risk.

    NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS OR COMPLETENESS OF ANY INFORMATION GIVEN OR MADE BY THE COMPANY IN ANY FORM OR MANNER. In no event shall the Company, its directors, shareholders, employees, representatives be liable to any party for any damages, expenses, fees, or losses in connection with any use of the information published by the Company.

    The Company reserves the right to take any rating action for any reasons the Company deems sufficient at any time and in its sole discretion. The publication and maintenance of credit ratings are subject to availability of sufficient information.

    The Company does not receive compensation for its unsolicited credit ratings. The rated entity did not participate in the rating process. The unsolicited credit rating has not been disclosed to the rated entity or to its related party before being issued.

    The Company reserves the right to disseminate its credit ratings and reports through its website, the Company’s social media pages and authorised third parties. No content published by the Company may be modified, reproduced, transferred, distributed or reverse engineered in any form by any means without the prior written consent of the Company.

    The Company’s credit ratings and reports are not indented for distribution to, or use by, any person in a jurisdiction where such usage would infringe the law. If in doubt, please consult the relevant regulatory body or professional advisor and ensure compliance with applicable laws and regulations.

    In the event of any dispute arising out of or in relation to our credit ratings and reports, the Company shall have absolute discretion in all matters relating to resolving the dispute, including but not limited to the interpretation of disclaimers and policies.

    Copyright © 2021 by Pengyuan Credit Rating (Hong Kong) Company Ltd. All rights reserved.