S&P Global Ratings Affirms China Water Affairs Group's 'BB+' Rating Amid Financial Weakness, Stable Outlook Maintained

S&P Global Ratings Affirms 'BB+' for China Water Affairs Group

S&P Global Ratings announced on January 29, 2026, the affirmation of its 'BB+' long-term issuer credit rating for China Water Affairs Group Ltd. (CWA), along with a 'BB+' long-term issue rating on the company's senior unsecured notes. The outlook remains stable. This decision reflects S&P's expectation of a gradual recovery in CWA's credit metrics over the next two to three years, despite recent financial underperformance attributed to delayed tariff adjustments and a slowdown in new connections.

Financial Headwinds and Projections

CWA's financials have reportedly fallen short of previous expectations, primarily due to slower-than-expected water tariff hikes and persistent weakness in new connections. S&P Global Ratings forecasts that the company's ratio of funds from operations (FFO) to debt will further decrease to approximately 11% in fiscal 2025 (ending March 2026), down from 11.8% in fiscal 2024.

The ongoing slowdown in China's property construction activities is expected to continue impacting CWA's water connection business, with projections indicating a potential decline of 20%-25% annually in fiscals 2025 to 2027. This segment's contribution to overall profits is anticipated to shrink to 10%-15% in fiscal 2025-2027, a notable decrease from 20%-25% over the past three years.

Path to Gradual Recovery

Despite these challenges, S&P Global Ratings anticipates a moderate recovery for CWA, driven by several key factors:

• Accelerating Tariff Adjustments: Local governments in lower-tier cities have shown increased willingness to approve water tariff hikes since 2025, following policy directives from the State Council in April 2025. This has led to approvals for nine water supply projects in the first half of fiscal 2025, a significant increase from just two in the entirety of fiscal 2024. S&P expects an average water tariff increase of 2%-3% per year through fiscal 2027.
• Disciplined Capital Expenditure: CWA's efforts to reduce capital expenditure (capex) and cut costs are expected to support debt reduction. The company's debt levels are projected to have peaked in fiscal 2024 and are expected to decline gradually.
• Improved FFO to Debt: The FFO to debt ratio is expected to moderately recover to 12%-13% over fiscal 2026-2027, reaching the higher end of the current financial profile level.

About China Water Affairs Group

China Water Affairs Group Limited (CWA) is recognized as a leading integrated water operator in China. Headquartered in Hong Kong, the company provides urban water supply, sewage treatment, and related value-added services across more than 100 cities in 20 provinces, serving an estimated population of approximately 30 million people.

Outlook

The stable outlook reflects S&P Global Ratings' expectation that CWA will continue to prioritize its core water business in China, maintaining stable profitability over the next 12-18 months. The anticipated reduction in capital expenditure is also seen as a crucial factor in the company's gradual deleveraging.