Hong Kong, November 15, 2019 -- Moody's Investors Service has affirmed COFCO (Hong Kong) Limited's A3
issuer rating and the A3 senior unsecured rating on the bonds issued by
Prosperous Ray Limited and guaranteed by COFCO HK.
The ratings outlook is stable.
RATINGS RATIONALE
"COFCO HK's financial performance in 2018 was in line with our expectation,
and we expect the company's leverage -- although likely to
increase -- will remain at a level appropriate for its A3 issuer
rating over the next 12-18 months," says Lina Choi,
a Moody's Senior Vice President and also Moody's International Lead
Analyst for COFCO HK.
COFCO HK's net debt/EBITDA improved to 4.2x at the end of
2018 from 5.1x in 2017, benefiting from improved profitability
at its key subsidiaries and an approximate 10% reduction in its
adjusted debt.
Moody's expects COFCO HK's adjusted net debt/EBITDA will increase moderately
to around 4.5x-4.7x over the next 12-18 months,
mainly as a result of its restructuring in early 2019 with Grandjoy Holdings
Group Co., Ltd (formally known as COFCO Property (Group)
Co., Ltd), which has higher leverage. Nevertheless,
this level of leverage remains appropriate for the company's A3
issuer rating.
COFCO HK's A3 issuer rating combines its standalone credit strength and
a four-notch uplift, based on Moody's expectation that the
company will receive a high level of support from its parent, COFCO
Corporation (COFCO Group), when needed.
COFCO HK's standalone credit profile is underpinned by its (1) diversified
business portfolio, (2) strong market positions in key areas,
and (3) expected stable cash flow from its food-related and investment
property businesses.
At the same time, the company's rating is constrained by its exposure
to volatility in commodity prices, execution risks associated with
its rapid expansion and its modest financial profile.
The credit profiles of COFCO HK and COFCO Group are closely linked.
COFCO HK, which is COFCO Group's sole platform for integrating the
group's offshore businesses and assets, accounted for around 68%
and 58% COFCO Group's revenue and total assets in 2018.
The two companies have joint management teams and share the same chief
executive officer.
Moreover, COFCO Group has a track record of injecting capital and
providing intercompany loans to COFCO HK. Consequently, Moody's
assessment of COFCO HK's standalone credit strength considers the operating
and financial profile of COFCO Group.
Moody's assessment of strong parental support reflects COFCO HK's strategic
importance to the group, the close linkages between the two companies,
and COFCO Group's track record of providing support to COFCO HK.
Moody's also expects that the Chinese government (A1 stable) will provide
support to COFCO Group and indirectly to COFCO HK in times of financial
stress, because COFCO Group is 100% owned by the State-owned
Assets Supervision and Administration Commission (SASAC) of the State
Council and both COFCO Group and COFCO HK play an important role in securing
agriculture products and improving food safety in the country.
The rating also factors in the following environmental, social and
governance (ESG) considerations .
In terms of social considerations, COFCO HK has moderate exposure
to social risks related to demographic and societal trends, because
of its role as a crucial supplier and gatekeeper of China's food security.
COFCO HK closely manages such social risks, including through tight
controls on product quality and safety, clean labeling and messages
about alcohol content and responsible consumption.
In terms of governance considerations, COFCO HK has high information
transparency relative to unlisted companies, because of the regular
public financial disclosures by its various listed subsidiaries,
which accounted for around 35% of its revenue and 50% of
its assets as of end-2018. COFCO HK has maintained a prudent
financial policy, as demonstrated by its ongoing deleveraging in
recent years. Moreover, the company is supervised by its
100% state-owned parent.
The stable outlook reflects Moody's expectation that COFCO HK and
COFCO Group (1) will maintain their current leverage levels, (2)
continue to improve the performance of their underlying businesses,
and (3) enforce strong risk management in their commodity trading businesses.
The rating could be upgraded if COFCO HK and COFCO Group (1) continue
to improve their business performance, (2) prudently manage their
growth and business risks in commodity trading, and (3) improve
their financial profiles, with adjusted net debt/EBITDA below 4x
for on a sustained basis.
The rating could be downgraded if (1) COFCO HK and COFCO Group engage
in further large debt-funded acquisitions, or (2) their business
profiles deteriorate because of weakening in their commodity trading businesses,
with adjusted net debt/EBITDA rising above 6.5x over a prolonged
period.
A material weakening in the support provided by COFCO Group and the Government
of China could also lead to a downgrade.
The principal methodology used in these ratings was Trading Companies
published in June 2016. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
COFCO (Hong Kong) Limited is a wholly owned offshore subsidiary of COFCO
Group. The company operates businesses in agriculture commodity
trading and processing, food products, packaging and property.
COFCO Group is 100% owned by the SASAC of the State Council.
COFCO Group is the largest supplier of agricultural and food products
in the country by sales revenue, and serves as one of China's main
importing and exporting channels for bulk agricultural products.
The local market analyst for these ratings is Cindy Yang, +86
(106) 319-6570.
REGULATORY DISCLOSURES
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.
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.
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
