Dagong HK assigns ‘BB’ global scale issue rating to Qinghai Provincial Investment Group’s proposed USD note

HONG KONG, 23 June 2017 – Dagong Global Credit Rating (Hong Kong) Co., Ltd. (“Dagong HK”), an international credit rating company, today assigns its global scale issue rating of ‘BB’ to the proposed USD-denominated senior unsecured notes issued by Qinghai Provincial Investment Group (“QPIG”). The net proceeds will be used for refinancing existing debt and general corporate purposes. The notes will constitute direct, unconditional, unsubordinated and unsecured obligations of the issuer and shall at all times rank pari passu and without any preference among themselves. The rating of the senior unsecured notes will be subject to our review on QPIG’s final offering documents. This USD-denominated senior unsecured notes will be the second USD notes issued by QPIG in 2017.

QPIG’s priority liabilities ratio, in terms of total adjusted assets, was stable at 42.4% in 1Q 2017 compared to 42.3% in FY 2016. Such level still imposes a disadvantage on the claim of the parent’s creditors. We believe the disadvantage can be mitigated by a high percentage of operating assets to total liabilities at the parent level and the parent’s downstream loans to its subsidiaries, in our view.

The company’s operating assets to total liabilities at the parent level decreased slightly to 95.3% in first quarter 2017 from 97.0% in fiscal year 2016, which was still maintained at a high level. As of first quarter 2017, the company owned total operating assets of RMB19.7 billion at the parent level, which comprised of but was not limited to RMB0.3 billion cash and short-term investments, RMB2.4 billion available for sale securities, and RMB16.8 billion long-term equity investments, to provide sufficient credit protection for the parent-level creditors.

On the other hand, the company held downstream loans of RMB7.0 billion to its subsidiaries by first quarter 2017, which provided the parent-level creditors a claim on the subsidiaries’ assets, in additional to the residual claim on the subsidiaries’ equity.

We also confirmed QPIG’s issuer credit rating (ICR) of ‘BB’ with 2016 financial results under our updated General Corporate Methodology published in March 2017 and maintained its stable rating outlook. QPIG’s initial ICR of ‘BB’ was assigned on February 07, 2017.

About Dagong HK

Dagong Global Credit Rating (Hong Kong) Co., Ltd. is dedicated to providing a wide range of credit rating services for issuers and investors, mainly covering corporate and financial institutions ratings, which could contribute to debt issuances in financial markets. Dagong HK also provides credit risk research and other services related to credit ratings.

Rating Methodology

The principal methodology used in this Qinghai Provincial Investment Group’s rating is Dagong HK’s General Corporate Rating Methodology published in March 2017, which can be found at the website www.dagonghk.com.