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China’s state-owned firms could get better credit ratings, valuations as Beijing pushes for manufacturing upgrade, analysts say
- The government has urged SOEs to shift their investment focus from infrastructure construction to hi-tech manufacturing
- Though likely to entail bigger capital expenditure, the ‘outcomes should be credit-positive for the firms involved,’ said Fitch
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Elise Makin Beijing
The credit profiles of some of China’s state-owned enterprises (SOEs) could improve as they invest more in advanced, high-end manufacturing as part of a push by Beijing to upgrade production capabilities, according to credit rating agencies.
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The central government has urged SOEs to shift their investment focus from infrastructure construction to hi-tech manufacturing in areas such as robotics, pharmaceuticals, mining and clean energy.
Because of this, Fitch expects to see an increase in their capital expenditure (capex) this year, which could affect credit metrics. Leverage could increase if such moves are debt-funded.
But there will probably be “only a moderate increase of capex intensity in the near term by most central SOEs,” as investments in key sectors are “likely to be selective and must meet certain return criteria,” Wang Ying, managing director of Asia-Pacific corporates at Fitch, told the Post.
In a note on Monday, Wang said: “If SOEs are able to pick and integrate the right targets, control risk effectively and promote innovation, outcomes should be credit-positive for the firms involved and beneficial for China’s growth.”
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She said any increase in their leverage is likely to be limited, especially if the investments are partly funded by equity flotations, thanks to a recent trend towards higher valuations for central SOEs listed on domestic stock exchanges.
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