Hong Kong, September 28, 2020 -- Moody's Investors Service has affirmed Xinjiang Goldwind Science
& Technology Co Ltd's Ba1 corporate family rating.
The rating outlook remains stable.
"The affirmation of Goldwind's Ba1 corporate family rating
reflects its leading market position in the manufacture of wind turbine
generators and its vertically integrated business model,"
says Ivy Poon, a Moody's Vice President and Senior Analyst.
"The rating affirmation also reflects our view that, despite
the slower than expected recovery in profit margin in 2020, the
company's leverage will improve moderately in 2021-22 to
a level consistent with the current rating," adds Poon.
RATINGS RATIONALE
Goldwind has maintained its solid market position as the largest manufacturer
of wind turbine generators in China, as measured by capacity installations.
Its integrated business model provides a degree of business stability
against the cyclical manufacturing business.
However, the slower than expected recovery in its profit margin
from the 2019 trough will weaken Goldwind's cash flow and keep its
leverage elevated in 2020. Margin compression is mainly driven
by higher procurement costs as well as delayed operation expenses associated
with the overseas business resulting from a delay in grid connections
as construction works were disrupted by the coronavirus pandemic.
Moody's expects the company's gross margin will weaken to
16%-17% in 2020 before an improvement to above 20%
in 2021-22. However, pricing pressure from intensified
market competition driven by grid parity in 2021 casts uncertainty over
the pace and extent of improvement.
The company has introduced a number of countermeasures, including
a shift to higher-margin wind turbine generators, enhanced
product efficiency through ongoing technological improvements, as
well as refinements of its overseas business strategy.
The financial risks are also partly mitigated by the company's deleveraging
through working capital management. Driven by a gradual recovery
in its profit margin and ongoing deleveraging efforts, Moody's
expect the company's adjusted funds from operation (FFO) to debt
will improve to 10%-12% in 2021-22 from 7%-8%
in 2020. The company's business strategy to monetize its
power projects could also partly alleviate the pressure on leverage.
These projected metrics have also considered the company's sizable
RMB7.5 billion -RMB9.5 billion annual capital spending
planned during 2020-22.
Goldwind's exposure to environmental risk is low for its wind power
generation business, while its manufacturing business does not create
material levels of pollution in air, soil and water.
The company faces moderate social risk. However, this risk
is mitigated by its track record of stable and safe operations of the
wind farm to support steady power supply to grid companies. It
has also implemented safety review procedures at various stages of the
manufacturing process to ensure staff health and safety.
In terms of governance risk, Moody's has considered the company's
ambitious capital spending and high leverage . Nevertheless,
as a company listed on the stock exchanges, the company has developed
a corporate governance structure with regular disclosures on its operations
and finances.
The outlook on the rating is stable, reflecting Moody's expectation
that Goldwind will maintain a stable credit profile, with a moderate
improvement in its financial metrics after 2020.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
While an upgrade is unlikely in the near term, the rating could
be upgraded in the longer term if (1) the manufacturing business shows
a stable operating performance; and/or (2) the company establishes
a meaningful track record of monetizing its power assets or implementing
a material deleveraging plan, and significantly improves its financial
profile.
Financial metrics indicative of an upgrade include FFO/debt rising above
20% on a sustained basis.
Moody's could downgrade the ratings if (1) adverse regulatory policies
materially jeopardize the power generation business in China; (2)
Goldwind's manufacturing business exhibits even greater volatility than
historically observed, resulting in a material deterioration in
profitability and cash flow; and/or (3) Goldwind engages in more
aggressive capacity expansion.
Financial indicators for a downgrade include FFO/debt remaining below
8.0% over a prolonged period.
The principal methodology used in this rating was Unregulated Utilities
and Unregulated Power Companies published in May 2017 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1066389.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Xinjiang Goldwind Science & Technology Co Ltd is the largest manufacturer
of wind turbine generators in China and also engages in wind power generation.
At 30 June 2020, the company was 13.76% owned by Xinjiang
Wind Power Co, Ltd (which is ultimately owned by the State-owned
Asset Supervision and Administration Commission of Xinjiang Uygur Autonomous
Region and China Three Gorges Corporation (A1 stable)), 13.50%
owned by Hexie Health Insurance Co., Ltd. and 10.53%
owned by China Three Gorges Corporation.
REGULATORY DISCLOSURES
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Ivy Poon
Vice President - Senior Analyst
Project & Infrastructure Finance
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
Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 61 2 9270 8141
Client Service: 852 3551 3077
Yian Ning Loh
Associate Managing Director
Project & Infrastructure Finance
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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JOURNALISTS: 852 3758 1350
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