Hong Kong, February 19, 2021 -- Moody's Investors Service has affirmed CAR Inc.'s Caa1 corporate
family rating (CFR) and senior unsecured rating.
At the same time, Moody's has changed the outlook on the ratings
to positive from negative.
On 18 February, CAR announced that Indigo Glamour Company Limited,
a subsidiary of MBK Partners Fund IV, a private investment fund
managed by MBK Partners, has received acceptances for more than
50% of the issued share capital and voting rights in CAR.
This development makes Indigo Glamour's voluntary general offer
for CAR's shares unconditional.
Subject to settlement, this will also make Indigo Glamour the majority
shareholder in CAR.
"The outlook revision to positive from negative reflects the emergence
of a majority shareholder for CAR, a significant development that
will improve the company's funding access and reduce uncertainty
regarding its business development, which are key factors for its
business operations," says Gerwin Ho, a Moody's
Vice President and Senior Credit Officer.
"The proceeds from a USD175 million convertible bond that was issued
on 15 January by CAR to Mcqueen SS, a subsidiary of an investment
fund that is also managed by MBK Partners, also support CAR's
debt repayment needs," adds Ho who is also Moody's Lead Analyst
for CAR.
In addition, MBK Partners' track record of investing in the
auto rental industry provides it with industry experience and knowledge
that could benefit CAR's operations.
The rating affirmation reflects CAR's challenging operating environment
and weak liquidity despite a likely improvement in its funding access.
RATINGS RATIONALE
CAR's Caa1 CFR is supported by the company's leadership position in China's
growing car rental market.
The Caa1 rating also considers the company's business model, which
has a certain level of financial flexibility, as seen by the short
lead time for its fleet acquisitions, its asset-light network,
and the ease with which it can dispose of assets.
At the same time, the rating is constrained by (1) direct competition
from other car rental companies and indirect competition from non-car
rental companies that provide transportation services; and (2) regulatory
risks in terms of controls on vehicle ownership and local regulation of
the automotive rental industry.
CAR's liquidity is weak. As of 30 June 2020, its cash balance
of RMB927 million -- including restricted cash of RMB9 million
-- was not sufficient to cover its short-term debt
of RMB5.2 billion, which includes a $300 million bond
that was due in February 2021 and a RMB750 million bond that is due in
April 2021.
Nonetheless, Moody's expects CAR can meet its upcoming maturities.
The company repaid the $300 million bond, supported by proceeds
from the $175 million convertible bond issued in January.
Moody's also expects the company's financial flexibility and
funding access to improve, resulting from the emergence of a majority
shareholder.
The coronavirus outbreak in China had reduced leisure and business travel,
pressuring CAR's revenue in 2020. However, Moody's expects
the impact of the outbreak on CAR's business will continue to dissipate
over the next 12-18 months, reflecting China's relatively
effective containment of the virus.
Moody's expects CAR's revenue to fall about 2% year on year over
the next 12-18 months. Auto rental revenue will grow about
3% compared with the same period a year ago as a result of better
rental pricing and utilization. Revenue from used-vehicle
sales is likely to decline about 11%, compared with the same
period a year ago, as the company expands its fleet.
Consequently, Moody's expects CAR's debt leverage, as measured
by adjusted debt/EBITDA, to remain stable at about 3.6x over
the next 12 months, compared with 3.6x in the 12 months ended
30 June 2020, reflecting a higher level of EBITDA and debt versus
the same period a year ago.
CAR's senior unsecured rating is not affected by subordination to claims
at the operating company level, because the latter is not seen as
material, especially as Moody's expects the majority of claims will
remain at the holding company.
Moody's credit assessment also takes into account the following environmental,
social and governance (ESG) considerations.
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety. Today's action also reflects the impact on CAR of the
breadth and severity of the shock, and the broad deterioration in
credit quality and shifts in market sentiment it has triggered.
As for governance, the introduction of Indigo Glamour, a subsidiary
of a fund that is managed by MBK Partners, as a major shareholder
in place of UCAR Inc., reduces concerns over CAR's
governance. CAR is developing its corporate strategy and financial
policy under its new major shareholder.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the ratings if CAR (1) improves its operations
in terms of revenue and profitability; (2) improves its liquidity;
and (3) demonstrates a track record of funding access.
On the other hand, Moody's could downgrade the ratings if CAR's
expected improvement in operations and liquidity does not materialize
or if its financial policy becomes more aggressive.
The principal methodology used in these ratings was Equipment and Transportation
Rental Industry published in April 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1061773.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
CAR Inc., founded in 2007 and headquartered in Beijing,
provides car rental services, including car rentals and fleet rentals
in China. CAR was listed on the Hong Kong Stock Exchange in September
2014.
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 entity is participating and the rated entity or its agent(s)
generally provides 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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.
Gerwin Ho
VP - Senior Credit Officer
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
