Moody's May Upgrade Some China Local SOEs

Moody's Investors Service on Thursday said it may upgrade the credit ratings of some of China's local state-owned enterprises, depending on the level of government support they receive.

"However, rating uplift for local SOEs, if any, will be considered on a case-by-case basis since the local governments differ in terms of their ability to provide support, given the varying strengths of their economies and finances and the often complicated ownership structures of the SOEs," Moody's analyst Ivan Chung said in the report.

Noting that China's local state-owned enterprises are issuing increasing amounts of overseas debt, the ratings firm put out a report Thursday seeking to address investor questions about the companies.

SOEs owned by local governments can get several advantages including regular operational support, concessions or monopoly rights in local areas, a higher probability of extraordinary support in times of stress, and better access to bank financing, Moody's said in the report.

However, there are notable disadvantages when compared to central government-owned companies, it added.

"Compared with local governments, the central government has a greater ability to provide support due to its larger and more diversified sources of income, and also has greater flexibility to provide monetary support on a timely basis," the report said.

Moody's said it currently rates three local government-owned companies as investment grade--Beijing Enterprises Holdings Ltd. (0392.HK), which operates gas pipelines in the city, toll-road operator Shenzhen International Holdings Ltd. (0152.HK), and Yanzhou Coal Mining Co. (1171.HK).

Write to Aaron Back at aaron.back@dowjones.com

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