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.
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The first name below is the lead rating analyst for this Credit Rating
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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
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