Fitch: Hong Kong's Northern Metropolitan Area plans to exceed HK$320 billion, government-related entities face upward pressure on leverage

The Zhitong Finance App learned that Fitch published a report saying that the development of Hong Kong's northern metropolitan area poses a test to government-related entities (GREs). According to Fitch Ratings, relevant entities of the Hong Kong government are expected to play an important role in supporting the development of the northern metropolitan area in Hong Kong's first five-year plan. The multi-year plan covers over HK$320 billion, covers about one-third of Hong Kong's land area, and targets 2.5 million people.

According to Fitch, due to the fact that the northern metropolitan area ecosystem is still in its early stages, rent and service revenue are expected to lag behind, and the leverage level of Xintian Science City Limited, Hung Shui Qiao Industrial Park Limited, and Hong Kong-Shenzhen Innovation and Technology Park Limited may rise. Other broader supporting government-related entities, such as MTR companies, universities and social housing developers, also faced similar mismatches and maintained high leverage over the continuation of the capital expenditure cycle.

According to the report, the three government entities responsible for the Northern Metropolitan Area, Xintian Science and Technology City Co., Ltd., Hung Shui Qiao Industrial Park Co., Ltd., and Hong Kong-Shenzhen Innovation and Technology Park Co., Ltd., have yet to implement financing models. If it shifts to supporting the development of the northern metropolitan area through debt pre-capital expenditure, the level of leverage may rise. The situation is similar to the “build first, then cash out” model seen in Guangzhou and Shenzhen industrial zone development; similar local entities mainly use long-term debt to finance initial construction and wait for rental income to stabilize before deploying.

Fitch pointed out that government support remains a key credit anchor, and capital injections, land grants and preferential loans can offset revenue lag. This model is also seen in the mainland's operating paradigm. However, the risk of enforcement still lies entirely with the relevant government entities themselves, and may over time diverge the credit status of relevant entities in the northern metropolitan area.