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Rating Action:

Moody's affirms Bright Food's Baa2 rating; outlook remains stable

 The document has been translated in other languages

29 Jul 2021

Hong Kong, July 29, 2021 -- Moody's Investors Service has affirmed the Baa2 issuer rating of Bright Food (Group) Co., Ltd. (Bright Food).

At the same time, Moody's has affirmed the Baa3 issuer rating of Bright Food International Ltd. (BFI) and the Baa3 senior unsecured rating on the EUR notes issued by Bright Food Singapore Holdings Pte. Ltd., and irrevocably and unconditionally guaranteed by BFI.

The rating outlook remains stable.

"The rating affirmation reflects our expectation that Bright Food and BFI's business and financial profiles will remain stable over the next two years, due to their diversified business portfolio, stable capital expenditure and investment, sound access to liquidity and high level of support from the Shanghai municipal government,'' says Lina Choi, a Moody's Senior Vice President.

RATINGS RATIONALE

Bright Food's Baa2 issuer rating primarily combines its ba2 Baseline Credit Assessment (BCA); and Moody's assessment of a high likelihood of support from and a high level of dependence on the Shanghai municipal government, and ultimately, the Government of China (A1 stable), in times of need. Such an assessment results in a rating that is three notches above the company's BCA.

The high support assessment reflects Bright Food's important role in ensuring food supply and safety and performing other policy functions in Shanghai; its status as a key platform for consolidating state-owned businesses; its 100% effective ownership by the Shanghai municipal government; and track record of recurring government support.

Bright Food's BCA of ba2 reflects the company's highly diversified business portfolio; the low demand risk and stable profit margins of its food and agriculture businesses; the strong market positions of several key products in regional markets; and its strong access to funding.

However, Bright Food's credit strength is constrained by the company's modest financial profile and exposure to the cyclical property business.

Bright Food's adjusted EBITDA in 2020 declined by around 14% in 2020 year on year as some of its businesses, such as property development, branded food, retail and distribution, and taxi services, were hurt by the COVID 19 outbreak in early 2020.

Nevertheless, the group's highly diversified business profile has partially offset the negative impact, on the back of stronger performance at its dairy, meat, vegetable, and sugar segments, due to increased consumption of certain food products and higher commodity prices.

Moody's forecasts Bright Food's adjusted debt/EBITDA will reduce to around 6.5x by the end of 2021 from around 7.6x as of the end of 2020. This improvement will be due to likely better performance from its property development, branded food and retail and logistic businesses, while its other businesses will remain stable. At the same time, Moody's expect Bright Food to manage its capital expenditure (capex) and investments prudently, such that its debt level will remain stable. The projected financial profile remains consistent with its ba2 BCA.

BFI's Baa3 issuer rating incorporates its standalone credit strength and a three-notch uplift based on Moody's assessment of support from its parent.

The three-notch parental uplift reflects BFI's importance to and close linkage with Bright Food. BFI, which is 100% owned by Bright Food, holds most of Bright Food's overseas businesses and accounts for around 39% and 30% of Bright Food's total revenue and debt, respectively, as of 2020.

BFI's standalone credit strength is underpinned by its diversified geographic and business profile, strong brand awareness and leading local market share in certain sub-segments. On the other hand, BFI's standalone credit strength is constrained by its modest financial profile.

BFI's leverage was stable in 2020 versus 2019 as most of its overseas businesses were not severely hurt by COVID 19 because consumption of food-related items rose as consumers increased dining at home. Moody's projects BFI's adjusted debt/EBITDA will stay at around 6.3x in 2021, which is appropriate for its standalone credit strength.

Bright Food held around RMB25 billion of cash at the consolidated level as of March 31, 2021, which is insufficient to cover its short-term debt maturity of around RMB 55 billion. Nevertheless, Moody's expects Bright Food to maintain its sound access to domestic bank loan and bond markets for refinancing. In addition, Bright Food holds a large amount of investments in liquid listed stocks, which can be alternative liquidity resources.

The Baa2 issuer rating of Bright Food also considers the following environmental, social and governance (ESG) factors.

There is limited environmental risk exposure associated with Bright Food, as its food and agriculture businesses do not involve high pollution risk. Some of its farming businesses (sugar, grains) could be negatively affected by physical climate risk, and water shortage. However, the risk is mitigated by its diversified business portfolio, long track record and experience in these areas.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework. Bright Food's overall performance was stable in 2020 as the strong performance of some of its businesses offset the pandemic impact on other businesses. Bright Food's food businesses are also exposed to food safety risk. Nevertheless, Bright Food's sound track record provides mitigants.

In assessing governance factors, Moody's takes into consideration Bright Food's 100% ownership and management oversight by the Shanghai municipal government.

As a non-listed entity, Bright Food has moderate information transparency. However, this risk is partly tempered by the fact that Bright Food has regular public financial disclosures in domestic bond markets. In addition, a few core subsidiaries are listed with good information disclosure.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Bright Food's stable outlook reflects (1) the stable outlook on China's sovereign rating, and (2) Moody's expectation that it will generate stable EBITDA and cash flow, and will prudently manage its business and financial profiles.

Bright Food's rating could be upgraded if the company's business or financial profile improves, such that its financial leverage reduces, debt growth slows and liquidity improves, with a reduced exposure to the cyclical property business.

Credit metrics indicative of upward rating pressure include Moody's-adjusted debt/EBITDA below 5.5x-6.0x on a sustained basis.

BFI's rating would be upgraded if Bright Food is upgraded and the former maintains its financial profile.

Bright Food's rating could be downgraded if the likelihood of government support for Bright Food decreases or Bright Food's BCA weakens.

Bright Food's BCA could weaken if the company's business or financial profile deteriorates such that its financial leverage increases further, debt growth accelerates, or liquidity reduces. Credit metrics indicative of downward pressure on its BCA include adjusted debt/EBITDA above 7.0x-7.5x for a prolonged period.

BFI's rating would be downgraded if Bright Food is downgraded or Moody's assesses that parental support from Bright Food has weakened.

The principal methodologies used in rating Bright Food (Group) Co., Ltd. were Protein and Agriculture published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113389, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. The principal methodology used in rating Bright Food International Ltd. and Bright Food Singapore Holdings Pte. Ltd. was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Incorporated in China and headquartered in Shanghai, Bright Food (Group) Co., Ltd. is fully-owned by the Shanghai municipal government. It is one of the largest food and agricultural conglomerates in China.

Bright Food International Ltd. (BFI) was established in 2011. The company is fully owned by Bright Food (Group) Co., Ltd., which is ultimately 100% owned by the Shanghai municipal government.

BFI is the major operating and financing platform of Bright Food's overseas investments.

The local market analyst for these ratings is Kai Hu, +86 (212) 057-4012.

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.

Lina Choi
Senior Vice President
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

Gary Lau
MD - Corporate Finance
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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