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Beijing State-owned Cap Op and Mgmt Ctr Inv — Moody’s assigns A1 to Beijing State-owned Capital Operation and Management’s guaranteed notes

Beijing State-owned Cap Op and Mgmt Ctr Inv — Moody’s assigns A1 to Beijing State-owned Capital Operation and Management’s guaranteed notes

Rating Action: Moody’s assigns A1 to Beijing State-owned Capital Operation and Management’s guaranteed notesGlobal Credit Research – 14 Feb 2022Hong Kong, February 14, 2022 — Moody’s Investors Service has assigned a rating of A1 to the proposed senior unsecured notes to be issued by Beijing State-owned Capital Operation and Management Center Investment Holdings Limited and guaranteed by Beijing State-owned Capital Operation and Management Company Limited (BSCOMC, A1 stable).The proceeds will be used for repayment of existing indebtedness.The rating outlook is stable.RATINGS RATIONALE”The A1 rating of the proposed notes reflects the unconditional and irrevocable guarantee from BSCOMC and the fact that the notes will rank pari passu with BSCOMC’s senior unsecured obligations,” says Gloria Tsuen, a Moody’s Vice President and Senior Credit Officer.”The proposed guaranteed notes will not materially increase BSCOMC’s overall debt level; instead, they will improve its liquidity and debt maturity profile,” adds Gloria, also Moody’s International Lead Analyst for BSCOMC.BSCOMC’s A1 issuer rating primarily combines (1) its baa1 Baseline Credit Assessment (BCA); and (2) Moody’s assessment of a very high likelihood of support from, and high level of dependence on, the Beijing government and ultimately the Government of China (A1 stable), which results in a rating that is three notches above its BCA.Moody’s very high support assessment reflects the following: 1) BSCOMC is the largest state-owned enterprise (SOE) in Beijing, accounting for more than half of total SOE assets under Beijing State-owned Assets Supervision and Administration Commission (SASAC) ; 2) BSCOMC is 100{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} owned by the Beijing government via Beijing SASAC and positioned by the government as its key state-owned capital operation company; 3) a number of BSCOMC’s underlying investments have high strategic importance to the Beijing government; 4) BSCOMC is mandated to manage the Government of Beijing Investment Fund; and 5) BSCOMC has a track record of support from the government.The support assessment also considers the reputational and contagion risks that may arise if BSCOMC were to default, given BSCOMC’s close linkage with the Beijing government, which runs the capital city of China.As such, Moody’s believes that the central government is likely to support efforts by the Beijing government to seek ways to prevent BSCOMC from defaulting, and thus, avoid the risk of disruption to the domestic financial markets. This support can take various forms, including government subsidies, capital or asset injections, and loans from policy as well as state-owned banks.The high dependence level reflects the fact that BSCOMC and the central government are exposed to common political and economic event risks.BSCOMC’s BCA of baa1 is underpinned by its large and diversified investment portfolio, sound investment track record, and prudent financial management, as indicated by its low market value-based leverage (MVL) of around 14{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} as of the end of September 2021.However, BSCOMC’s BCA is constrained by its high geographic concentration in China and moderate credit contagion risk from some key investees with high financial leverage, such as Shougang Group Co., Ltd. Moody’s expects that BSCOMC would provide liquidity support to such key investees if necessary. But the support to these entities will ultimately come from the government.Moody’s estimates that BSCOMC had an adjusted portfolio value of around RMB407 billion as of the end of September 2021. Its investments span a wide range of industries, including steel, asset management, regulated electric and gas utilities, toll roads, consumer goods, building materials, automobile manufacturing and financial services. These investments provided BSCOMC with an average dividend income of around RMB7 billion per year during 2016-21.In addition, BSCOMC has demonstrated a sound investment track record, which includes successfully developing new businesses, achieving the public listings of its major investees and achieving good returns from its market-oriented investment funds.BSCOMC has a prudent policy on financial management. The company’s debt position and leverage at the holding company level remain largely stable over the past 5 years.Moody’s expects that BSCOMC will have major investment needs of around RMB20 billion-RMB25 billion at the holding company level in 2022, primarily for new equity investments in Beijing SOEs as well as Government of Beijing Investment Fund. Such investments will continue to be partly supported by capital grants from the Beijing government.Moody’s expects BSCOMC’s MVL and adjusted (funds from operations [FFO] + interest)/interest coverage to stay at around 12{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}-14{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} and around 2x-3x, respectively, over the next 1-2 years. Such metrics are appropriate for its baa1 BCA.BSCOMC’s cash and wealth management products at the holding company level of around RMB22 billion as of the end of September 2021 are insufficient to support its short-term debt of around RMB25 billion, including guaranteed debt. But this is counterbalanced by BSCOMC’s strong access to bank credit and the capital markets, because of its status as a high-profile SOE owned by the Beijing government.BSCOMC’s issuer rating also takes into account the following environmental, social and governance (ESG) considerations.BSCOMC has moderate exposure to environmental risk factors because 20{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the company’s investment portfolio focuses on the steel industry. Steel makers in China face increasingly stringent requirements on carbon emissions and heightened costs. Nevertheless, BSCOMC’s investment portfolio covers a wide range of industries, in addition to steel, that have low exposure to environmental risk. The sizable portfolio and good business diversification provide some stability to the company’s portfolio value and dividend income stream.BSCOMC has moderate exposure to social risks related to demographic and societal trends because 11{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the company’s investment portfolio focuses on regulated electric and gas utilities. However, BSCOMC’s well-diversified investment portfolio can mitigate the volatility in business and financial performance arising from certain investees. Meanwhile, because most of the investments are concentrated in Beijing, BSCOMC can benefit from the city’s well-developed economy and increasing population.In assessing BSCOMC’s governance risk, Moody’s takes into consideration its 100{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} ownership by the Beijing government. BSCOMC demonstrates a prudent investment approach and sound risk management. The company has refrained from expanding aggressively despite its abundant financial resources. Despite its unlisted status, BSCOMC — as a domestic bond issuer — regularly discloses its financial information.The stable outlook reflects 1) the stable outlook on the China sovereign rating; and 2) Moody’s expectation that BSCOMC will prudently manage its investment and that its leverage will remain appropriate for its baa1 BCA.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSBSCOMC’s rating could be upgraded if the Beijing government and ultimately the Chinese government’s ability to provide support strengthens, which would be illustrated by an upgrade of China’s sovereign rating, in the absence of a weakening of BSCOMC’s BCA.BSCOMC’s BCA could be upgraded if BSCOMC’s investment portfolio materially improves, including an enhanced credit quality of key investees, and stronger business and geographic diversification of its investment portfolio.Credit metrics that will lead to an upgrade of its BCA include an adjusted MVL below 10{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} and FFO/interest coverage higher than 4.0x on a sustained basis.However, a BCA improvement alone will not trigger a rating upgrade, given that BSCOMC is already rated at par with the sovereign.BSCOMC’s rating would be downgraded if the Beijing government and ultimately the Chinese government’s ability to provide support weakens, which would be illustrated by a downgrade of China’s sovereign rating.BSCOMC’s BCA could be downgraded to baa2 if it embarks on aggressive debt-funded investments, or there is a substantial weakening in the credit quality of its major investees.Credit metrics indicative of downward pressure on its BCA include an adjusted MVL exceeding 15{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}-20{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} and FFO/interest coverage lower than 1.5x for a prolonged period.However, such a moderate weakening in the company’s BCA is unlikely to immediately lead to a downgrade of its rating, given the very high likelihood of government support.The methodologies used in this rating were Investment Holding Companies and Conglomerates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125855, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.Established in 2008, Beijing State-owned Capital Operation and Management Company Limited is a wholly-owned capital operating company under the Beijing municipal government. It is an important platform for managing state-owned assets and capital on behalf of the government, aiming to securitize and maximize the value of these state-owned assets. Moody’s estimates that BSCOMC’s investment portfolio had a total portfolio value of RMB407 billion as of the end of September 2021.The local market analyst for this rating is Yuting Liu, +86 (106) 319-6530.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Moody’s considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody’s. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody’s with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody’s Policy for Designating Non-Participating Rated Entities.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating. 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Operation Hidden Treasure: The IRS vs. Crypto

In March 2021, the IRS announced the launch of Procedure Concealed Treasure, a new enforcement initiative for tax violations linked to cryptocurrency. In excess of the future handful of years, individuals taxpayers who have not properly described cryptocurrency transactions can expect to listen to from the IRS, most probably in the variety of audit notices.

The world of digital forex, or crypto, is unregulated and mysterious by layout, producing it tricky for IRS personnel to acquire info on transactions of desire.

A walk by way of the past 7 yrs of IRS procedures, statements and actions on virtual currency sheds mild on equally today’s situation and the road in advance.

 

IRS Defines Crypto In 2014

Cryptocurrency admirers have referred to Bitcoin as “the most effective funds we have at any time experienced.” Nevertheless, in an formal 2014 recognize, the IRS declared crypto assets residence, for tax functions, classifying it as extra akin to shares than to standard currencies. As a end result, almost each and every transaction involving the trade of crypto will have tax ramifications and reporting requirements.

Trading crypto, or exchanging it for items or true currency, will outcome in a small- or very long-phrase capital gain. And, accepting the forex as payment for labor or services has very clear earnings tax repercussions. Even a transaction that exists only in the crypto universe—like a tricky fork followed by an air drop—carries IRS reporting obligations and likely tax legal responsibility.

Yet, whilst the 2014 discover produced obvious the U.S. Treasury’s intention to assert its slice of the digital currency pie, the IRS lacked the needed instruments to act on that intention. In the meantime, as participation in crypto markets skyrocketed, voluntary reporting of these transactions by taxpayers remained almost nonexistent. To change this trajectory, the IRS will require to break by means of the cryptocurrency veil of anonymity.

 

The To start with John Doe Summons

In 2016, the crypto trading system Coinbase been given a “John Doe summons,” a software the IRS makes use of to ask for details about a class of unnamed taxpayers. In this case, the course consisted of customers on the platform all through the many years 2013 via 2015 who experienced conducted transactions totaling $20,000 or more in price.

In the end, Coinbase turned over information pertaining to about 14,000 buyers. The IRS despatched letters to many of these taxpayers, instructing them to amend past tax returns to disclose their crypto functions. So started the present period of enforcement.

The up coming phase occurred in 2018, when the IRS declared a multi-pronged crypto asset compliance marketing campaign, which centered on official IRS notices and taxpayer exams (audits). Letters commenced going out to taxpayers in 2019, informing them the IRS was informed of the cryptocurrency routines they experienced evidently failed to report. As soon as yet again, letter recipients were being inspired to amend their tax returns to steer clear of the worst penalties.

 

Much more Companies Get an IRS Summons

The 2016 John Doe summons was followed by two much more in 2021, targeting crypto buying and selling platforms operated by Circle Online Fiscal and Payward Ventures (aka Kraken). Like the original summons issued to Coinbase, these inquiries centered on system end users with at the very least $20,000 in crypto transactions.

Whereas the Coinbase summons protected only the several years 2013 by way of 2015, the ones issued in 2021 seek out information on transactions ranging from 2016 by means of 2020, a 5-12 months variety. Consequently, it is likely several additional taxpayers will obtain by themselves above the $20,000 floor, and on the expanding IRS radar monitor. Presumably, a refreshing batch of IRS letters will go out around the coming months, necessitating 1000’s much more taxpayers to amend returns.

 

Procedure Concealed Treasure Commences

Considering the fact that its inception in 2018, the IRS cryptocurrency tax compliance marketing campaign has mainly remained a patchwork of info requests, letters, and occasional audits. The IRS took things to a total new amount in 2021, although. With the new summonses and the launch of Procedure Hidden Treasure, the IRS has devoted significant resources and some of its top agents to digital currency tax enforcement.

This new initiative partners the IRS Business office of Fraud Enforcement with the agency’s Felony Investigation Division. The brokers spearheading Operation Hidden Treasure have distinctive training in the logistics of digital currencies, as well as investigative techniques for equally civil and felony tax evasion. They will be trying to keep a keen eye out for indications of deliberate tax dodging, this sort of as gimmicky transaction buildings that serve no objective other than keeping under expected reporting thresholds.

And, the Treasury’s Financial Crimes Enforcement Network (FinCEN) aims to amend the Lender Secrecy Act, reclassifying crypto holdings as reportable accounts.

 

What to Hope In excess of the Upcoming A number of Many years

As Operation Hidden Treasure ramps up in 2022 and over and above, an IRS John Doe summons to a crypto system will possible grow to be the norm somewhat than a rare incidence. Far more information accumulating will mean far more taxpayers getting IRS letters, main to a lot more cryptocurrency audits.

The IRS Commissioner and his executive team imagine cryptocurrency transactions definitely do depict a concealed treasure of formerly uncollected tax revenues. Taxpayers who consequently considerably have dismissed reporting necessities would be well advised to commence amending their returns, before the hammer drops in earnest.

This posting is not tax, lawful, or other skilled advice and can’t be relied upon for any purpose with no consultation and advice from a retained skilled. 

Harvey Bezozi is a CPA and CFP ®. A lot more details can be located at YourFinancialWizard.com