Hong Kong, May 07, 2013 -- Moody's Investors Service has assigned a Baa3 rating to the USD notes
proposed by Bright Food Hong Kong Limited.
The notes will be irrevocably and unconditionally guaranteed by Bright
Food (Group) Co., Ltd. (Bright Food).
At the same time, Moody's has affirmed the Baa3 issuer ratings of
Bright Food.
The outlook for the ratings is stable.
The proceeds from the notes will be used for debt refinancing.
RATINGS RATIONALE
"Bright Food will use the proposed notes of relatively long maturity
to refinance the short-term bridging loan financing its acquisition
of Weetabix, and this issuance will improve its debt maturity profile,
and hence stabilize its funding profile," says Alan Gao,
a Moody's Vice President and Senior Analyst.
"The proposed notes will also reduce funding costs through lower
interest rates, relative to the cost of domestic borrowings,"
adds Gao, who is also the lead analyst for Bright Food.
"Furthermore, Moody's notes that Bright Food's
2012 financial results and financial plan continue to support its Baa3
ratings," says Gao.
Its consolidated revenue and EBIT of RMB90.7 billion and RMB3.9
billion in 2012 respectively were largely in line with Moody's expectations.
Weakness in its sugar business was offset by strong results from other
key business units, such as dairy, modern agriculture and
food processing.
Consolidated gross debt amounted to RMB53.6 billion, up 54%
from RMB34.9 billion the prior year, mainly due to (1) the
consolidation of Weetabix, which has high debt leverage; and
(2) its RMB5.3 billion new domestic bond issuance to support the
working capital needs of its sugar business and the social housing projects
of its property business.
Moody's expects Bright Food will maintain a financial profile consistent
with its Baa3 rating through deleveraging in 2013. The process
may involve asset disposals.
Bright Food's Baa3 rating combines its baseline credit assessment (BCA)
of ba1, and a one-notch uplift based on Moody's expectation
of strong support by the Shanghai Municipal Government in the event of
financial distress.
Bright Food's BCA reflects (1) its low demand risk and stable profit margins
from its food and agriculture business; (2) its strong growth,
as underpinned by a favorable industry outlook and its successful expansion
strategy; and (3) its diversified and ample funding channels.
On the other hand, these credit strengths are counterbalanced by
the group's (1) integration risk because of recent acquisitions and previous
business restructuring; (2) near-term earnings pressure as
a result of volatility in sugar prices; and (3) weak operating cash
flow and high leverage.
The BCA also factors in structural subordination risk, given Bright
Food's holding company status with a majority of debt booked at the subsidiary
level.
In assigning the one-notch uplift, Moody's has taken into
consideration (1) Bright Food's ultimate 100%-government
ownership; (2) the direct supervision by the State-owned Assets
Supervision and Administration Commission of the Shanghai Municipal Government;
(3) the group's key role in supplying sugar and other essential staples
to the Shanghai consumer market; and (4) its history of receiving
annual government grants and subsidies.
Bright Food maintains good liquidity. As of 31 December 2012,
it had a cash balance of RMB19.4 billion, and available-for-sales
investments with a market value of RMB12.2 billion. These
liquid funds sufficiently cover its RMB28.8 billion in short-term
debt, which includes bills payable.
Bright Food's stable outlook reflects Moody's expectation that the group
will uphold its leadership position in its core food business in the Shanghai
and East China markets, and that it will also maintain adequate
liquidity.
Upward rating pressure is limited in the near term as the group is still
in the process of integrating its recent acquisitions, despite the
progress made in 2012.
However, positive rating pressure could emerge over time if the
group (1) demonstrates success in fully integrating Weetabix; (2)
generates sustained and positive free cash flow; and (3) achieves
meaningful deleveraging through equity raisings.
Moody's would consider the following as signs of upward rating pressure:
(1) adjusted debt/ capitalization consistently below 40%;
(2) FFO/debt consistently over 15% and (3) EBITDA/interest above
5.0x - 5.5x.
Downward rating pressure could arise if (1) the group fails to fend off
competition, such that its market share significantly erodes,
adversely affecting its profitability and cash flow generation; (2)
it encounters material food safety problems, which could weaken
consumer confidence in its products, and thereby affect its market
share; (3) it undertakes aggressive acquisitions that weaken its
balance sheet; or (4) government support weakens significantly.
Moody's would consider the following as triggers for downward rating pressure:
(1) adjusted debt/ capitalization consistently above 60%;
(2) FFO/debt consistently below 10%; and (3) EBITDA/interest
below 3.5x - 4.0x.
Bright Food's ratings were assigned by evaluating factors that Moody's
considers relevant to the credit profile of the issuer, such as
the company's (i) business risk and competitive position compared with
others within the industry; (ii) capital structure and financial
risk; (iii) projected performance over the near to intermediate term;
and (iv) management's track record and tolerance for risk. Moody's
compared these attributes against other issuers both within and outside
Bright Food's core industry and believes its ratings are comparable to
those of other issuers with similar credit risk.
Other factors used in this rating are described in Analytical Considerations
in Assessing Conglomerates published in September 2007.
Incorporated in China and headquartered in Shanghai, Bright Food
(Group) Co., Ltd. is one of the largest food conglomerates
in China with various business segments and a strong focus on food manufacture
& supply. The group has four major business segments,
including: food and agriculture; food wholesale and retail;
real estate development; and logistics.
Bright Food's food and agriculture segment is the core business unit generating
more than 50% of the group revenue and EBIT, and comprises
a highly diversified product portfolio, for example, sugar,
dairy, staple agriculture products, processed meat products,
snack foods, and liquor & wine. Bright Food is effectively
100% owned by the State-owned Assets Supervision and Administration
Commission of the Shanghai Municipal Government.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
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.
Alan Gao
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's assigns Baa3 rating to Bright Food's proposed USD notes
