Sinochem Hong Kong (Group) Co. Ltd.

The stable outlook on Sinochem Hong Kong reflects our expectation that the company will remain a core subsidiary of Sinochem Group. Sinochem Group's credit quality will be stable as we continue to view that it has a very high likelihood of receiving extraordinary government support if needed. We anticipate that Sinochem Group's credit metrics will remain relatively stable in 2020-2021 as high levels of capital spending and working capital cash outflow will constrain the group's pace of deleveraging. We could lower the rating if:(1) Sinochem Group's financial performance deteriorates or the group pursues large-scale acquisitions or construction of new projects and primarily funds these with debt, such that its FFO cash interest coverage falls below 2.5x over a prolonged period;

...Sinochem Hong Kong is likely to benefit from support from Sinochem Group and indirectly from the Chinese government. Sinochem Hong Kong (Group) Co. Ltd. remains a core subsidiary of Sinochem Group and will likely receive necessary support from its parent to meet its debt obligations. As the group's key offshore platform for investments and funding, we view Sinochem Hong Kong to be integral to the group strategically, operationally, and financially. Our assessment of Sinochem Group's likelihood of extraordinary government support is unchanged after the transfer of its agriculture assets to China National Chemical Corp. Ltd. (ChemChina; ###/Stable/--) this year, as we view this as a step toward the ultimate merger between the two state-owned enterprises. Sinochem Group's debt will remain high in the coming two years to fund its business expansion. Based on our forecast, the group's debt will rise by 5.5%-6.0% per year to reach Chinese renminbi (RMB) 214 billion in 2021, from RMB191 billion...

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