Hong Kong, September 10, 2021 -- Moody's Investors Service has affirmed the Ba2 corporate family rating
(CFR) of AirPower Technologies Limited (AirPower Tech), formerly
named Yingde Gases Group Company Limited.
At the same time, Moody's has affirmed the Ba2 backed senior unsecured
rating on the bonds issued by Yingde Gases Investment Limited and guaranteed
by AirPower Tech.
The outlook on the ratings remains stable.
"The rating affirmation reflects Moody's view that AirPower Tech's
acquisition of Shanghai Baosteel Gases Co., Ltd. (Baosteel
Gases) helps improve its operating scale and business diversification.
In addition, the company's potential IPO could bring improvement
to its governance structure. It has sufficient financial buffers
to weather the uncertainty of the IPO process," says Roy Zhang,
a Moody's Vice President and Senior Analyst.
"On the other hand, the acquisition and special dividend will
increase the company's financial leverage and reduce its liquidity
buffer. These risks are mitigated by the company's strong
financials and long-term funding access," adds Zhang.
RATINGS RATIONALE
AirPower Tech's Ba2 CFR reflects the company's strong market
position as the largest industrial gas supplier in China, its stable
business operation, and its steady cash flow generation, supported
by its long-term contracts with on-site customers.
At the same time, AirPower Tech's CFR is constrained by the
company's private status with 100% ownership by private equity
owners, as it is not subject to the same financial disclosure obligations
and regulatory supervisions as listed companies.
Moody's believes that the acquisition of Baosteel Gases will improve
AirPower Tech's business profile in terms of operating scale,
market coverage, operation diversification and client concentration
risks. The combined entity ranks top in China and fifth globally
by revenue in 2020 among industrial gas producers, according to
Frost & Sullivan.
Baosteel Gases reported RMB2.1 billion in revenue in the first
half of 2021, which accounted for about 20% of the pro forma
revenue of the combined entity. Baosteel Gases is now 64.82%
owned by AirPower Tech and 35.18% owned by Baowu Clean Energy.
If the IPO is successful, AirPower Tech will become a listed company
and be required to comply with listing rules, which will improve
its disclosure transparency. It will also need to comply with various
regulatory requirements, which could result in a better corporate
governance structure. For example, the company will need
to appoint three independent members on its board of directors in preparing
for its IPO.
Despite this, Moody's expects that given that PAGAC II-2
Limited will remain the largest shareholder with control of the board,
AirPower Tech's ownership concentration risks will remain even after
the IPO has been completed.
Moody's expects AirPower Tech's debt to EBITDA ratio to stay
at around 2.0x-2.5x in the next 12-18 months,
without considering the IPO proceeds. Such a leverage level is
strong for the company's rating category.
The company's liquidity will remain adequate, supported by
its steady cash flow generation and ability to secure long-term
financing. The acquisition was funded by a mix of cash and long-term
debt due in 2028.
Moody's will continue to monitor the company's IPO progress
in terms of timeline, financial arrangement, size and use
of proceeds, future strategy and commitment to a prudent financial
policy.
The senior unsecured bond rating is unaffected by subordination to claims
at the operating company level, based on Moody's expectation that
the majority of claims will remain at the holding company level.
AirPower Tech's creditors also benefit from the group's highly diversified
business profile — with cash flow generation across a large number
of operating subsidiaries — which mitigates structural subordination
risk.
AirPower Tech's rating also considers the following environmental,
social and governance (ESG) factors.
Industrial gas firms have lower direct environmental risks related to
manufacturing processes compared with other specialty chemical companies.
However, they supply customers that have high risks, including
steelmakers and chemical producers, and in some cases, they
are directly integrated into their clients' facilities.
The rating also considers AirPower Tech's private company status
and concentrated ownership, with PAGAC II-2 Limited owning
a 100% stake. As a private company, AirPower Tech
is not subject to the same strict disclosure requirements as listed companies.
Nevertheless, based on the company's track record, Moody's
expects it to manage its financial profile prudently.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable rating outlook reflects Moody's expectation that AirPower Tech
will grow its revenue and maintain its profitability and positive free
cash flow generation, as well as maintain its prudent financial
management, with disciplined capital spending, acquisitions
and shareholder distributions. At the same time, Moody's
expects the company to maintain its adequate liquidity profile.
Upward rating pressure could emerge if the company's shareholding structure
changes, including but not limited to a public listing, resulting
in better public disclosure and commitment on financial policy regarding
its capital structure, liquidity, acquisition and shareholder
distribution.
Moody's could downgrade the ratings if (1) the company's revenue or profitability
declines; (2) its liquidity or credit profile deteriorates,
such that its adjusted debt/EBITDA exceeds 3.0x-3.5x
on a sustained basis; or (3) it demonstrates poor information disclosure
or an aggressive financial policy.
The principal methodology used in these ratings was Chemical Industry
published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
AirPower Technologies Limited is one of the largest companies in the independent
on-site industrial gas market in China. As of December 2020,
the company had 100 gas production facilities in operation and another
21 under development. PAGAC II-2 Limited, a special
purpose vehicle managed by a private equity firm, held a 100%
stake in AirPower Tech as of December 2020.
REGULATORY DISCLOSURES
For 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.
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Roy Zhang
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
Client Service: 852 3551 3077
Clement Cheuk Yiu Wong
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 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
Client Service: 852 3551 3077
