Coronavirus to take big toll on China's transport operators: S&P

February 4, 2020

HONG KONG -- S&P Global Ratings said today that the novel coronavirus outbreak has already had a severe impact on the transportation infrastructure sector in China. S&P expects the ripple effects on transportation to be more significant and enduring than in the spread of SARS in 2003.

"The outbreak will undermine the credit strength of many Chinese infrastructure operators in 2020," said S&P Global Ratings credit analyst, Gloria Lu.

"The impact on ratings depends on the extent to which Government or parent support is provided, given the exceptional circumstances".

Passenger transport in China has plummeted in recent weeks.

Over the 10-day lunar new year holiday that began on January 24, passenger volumes on major means of transport combined dropped more than 70% compared with the holiday period of 2019. This includes air, rail, road, and water transport.

China has invested massively to develop a well-connected transportation infrastructure network over the past two decades. S&P says that while this greatly improves connectivity and propels economic and social development, it can also contribute to a more rapid dissemination of epidemic diseases.

In the report, S&P says:

 *Air passenger traffic is likely to be hit harder than other types of transportation, in part because flying in China is often discretionary, for leisure purposes.

* For major Chinese hub airports, international flights will drop more than domestic flights, it says. More than 40 airlines have already cancelled routes to and from China.

* The impact on toll roads will be moderate-to-high, subject to asset locations (with Hubei hit hardest), the mix of traffic (with passenger flow more vulnerable than freight transport), and the duration of the outbreak.

* Sea ports are relatively less affected because of their low association with passenger traffic, but S&P expects a negative impact on export from disruptions to China's supply chain and manufacturing -- due to production halts, extended holidays, or delayed return of workers from holidays due to travel restrictions.

"We anticipate Chinese central governments will roll out measures to support virus-stricken sectors, including transportation, to limit the fallout of the health crisis," S&P says.

"Such support may include tax holidays, operating subsidies, and widened funding access. However, we do not expect much in the way of direct support.

"This is because local and regional governments (LRGs) own most transport operators, and in a scenario of widespread infection, LRGs could face more fiscal challenges, including decreased tax revenues and structurally slowing growth, as well as higher medical and social-related costs due to the virus outbreak." (ATI).