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Jiangsu Nantong Sanjian Const. Grp. Co., Ltd. -- Moody's downgrades Jiangsu Nantong Sanjian Construction to Caa2; outlook remains negative

·14 mins read

Rating Action: Moody's downgrades Jiangsu Nantong Sanjian Construction to Caa2; outlook remains negative

Global Credit Research - 02 Sep 2020

Hong Kong, September 02, 2020 -- Moody's Investors Service has downgraded Jiangsu Nantong Sanjian Construction Group Co., Ltd.'s (JNTC) corporate family rating (CFR) and the senior unsecured rating on the bond issued by Jiangsu Nantong Sanjian International Co., Ltd. and guaranteed by JNTC to Caa2 from Caa1.

The ratings outlook is negative.

The rating action follows the announcement of JNTC's debt exchange offer on 31 August 2020, in which the company proposed to exchange 20% of the principal amount on its $300 million offshore bond -- maturing in October 2020 with a 7.8% annual coupon -- with cash. The remaining 80% will be exchanged with new notes due in 2022 with an annual coupon of 10.0%.

"The downgrade reflects JNTC's very weak liquidity and the uncertainty around the completion of its exchange offer," says Roy Zhang, a Moody's Associate Vice President and Analyst.

Moody's considers JNTC's debt exchange offer as a way to avoid default, given its very weak liquidity profile. The offer can therefore be viewed as a distressed exchange, which is a default under Moody's definition.

RATINGS RATIONALE

JNTC's Caa2 CFR reflects the company's high refinancing pressure and reliance on substantial external financing to cover its funding needs. It has insufficient cash on hand and operating cash flow to cover its repayments coming due over the next 12 months.

The company's weak liquidity profile is counterbalanced by its established market position, operational track record, good revenue visibility, stable margins and diversified client base.

From a governance perspective, the ratings factor in (1) the company's concentrated ownership in Nantong Sanjian Holdings, which held a 73.05% stake at the end of December 2019; (2) JNTC's weak reporting and disclosure requirements; (3) the presence of large amounts of connected transactions and intercompany borrowings, and (4) JNTC's weak financial management.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The negative outlook reflects Moody's concerns over JNTC's weak liquidity and ability to arrange funding on time to meet its refinancing needs, which could lead to low recovery prospects for lenders.

Moody's could upgrade JNTC's ratings if the exchange is completed, and the company's liquidity risk is reduced.

On the other hand, Moody's could further downgrade the rating if the company fails to meet its obligations.

The principal methodology used in these ratings was Construction Industry published in March 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1061454. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Jiangsu Nantong Sanjian Construction Group Co., Ltd. (JNTC), headquartered in Haimen, Jiangsu Province, is a privately-owned engineering contractor in eastern China. The company's revenue for 2019 was around RMB24.8 billion.

As of the end of December 2019, the company was 73.05% owned by Nantong Sanjian Holdings, which is in turn majority owned by its founders and 13.22% owned by Haimen City Development and Construction Co., Ltd., under the Haimen State-Owned Assets Supervision and Administration Commission.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entities are participating and the rated entities or their agent(s) generally provide Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Roy Zhang Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Clement Cheuk Yiu Wong Associate Managing Director Corporate Finance Group JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077

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