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Rating Action:

Moody's affirms AirPower Tech's ratings with stable outlook, following Baosteel Gases' acquisition

10 Sep 2021

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.

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 ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are 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 entities are participating and the rated entities or their agent(s) generally provide 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_1288435.

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.

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

No Related Data.
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