SOEs projected to maintain flat leverage levels in 2019

China’s State-owned enterprises’ (SOEs) leverage levels are expected to remain flat in 2019, although trends will differ by sector, according to Moody’s Investors Service.

"The SOEs' EBITDA growth in 2019 will be weaker than in 2018, due to China's slower economic growth. Nevertheless, the Chinese government's continued focus on SOE deleveraging will help curb debt increases for rated SOEs," said Hu Kai, Moody's senior vice-president.

Thirty of the 61 rated SOEs should show broadly flat leverage in 2019 when compared with 2018, while 20 SOEs will demonstrate meaningful decreases in leverage. The remaining 11 will show meaningful leverage increases, according to the rating agency.

Trends will differ by sector, with leverage increases to be concentrated in the transportation, investment holding, and conglomerates sectors, given their high investment needs, said the rating agency.

As the government continues to cut leverage levels, deleveraging policy will continue to curb rated SOEs’ debt increase, which will offset the weaker EBITDA growth of most SOEs amid slower economic growth, the agency added.