Hong Kong, August 30, 2021 -- Moody's Investors Service has affirmed Xinjiang Guanghui Industry Investment
(Group) Co., Ltd.'s (Guanghui Group) B2 corporate
family rating (CFR) and B3 senior unsecured debt ratings.
The outlook remains negative.
"The rating affirmation reflects our expectation that Guanghui Group
will maintain its market position in auto dealer, energy and property
business segments. Business recovery will lead to improving financial
metrics. At the same time, we expect the company to sustain
its funding access and meet its payment obligations," says
Roy Zhang, a Moody's Vice President and Senior Analyst.
"The negative outlook reflects the company's weak liquidity
due to reliance on short-term debt and uncertainty on its ability
to improve its liquidity management over the next 12 months,"
adds Zhang.
RATINGS RATIONALE
Guanghui Group's B2 CFR reflects its control over China Grand Automotive
Services Group Co., Ltd (B1 negative), the leading
auto dealer in China with an extensive network and strong geographic coverage,
as well as a diversified brand offering and business.
On the other hand, the rating is constrained by Guanghui Group's
weak liquidity, structural subordination to its major operating
entities and private company status.
Guanghui Group's higher leverage in 2020 was mainly due to the pandemic,
which led to lower commodity prices and demand for the company's
products and services. However, Guanghui Group's capital
structure was not affected materially, with total reported debt
declining in 2020. Moody's expects the company's leverage,
measured by debt/EBITDA, to improve to 5.8x in 2021,
supported by much higher commodity prices and a strong recovery in demand.
Guanghui Group's key listed subsidiary, China Grand Auto and
Guanghui Energy Co., Ltd., recorded solid financial
results in the first half of 2021. The results were not only materially
better than that in 2020, but are close to or above that in 2019.
However, Guanghui Group relies heavily on short-term debt,
resulting in inadequate liquidity. As of the end of March 2021,
its restricted and unrestricted cash pool of RMB30.7 billion was
insufficient to cover its short-term debt.
Guanghui Group has a good track record of refinancing its debt over the
past decades and continued funding access over the past two years.
Founded in 1989, the company is one of the largest privately-owned
enterprises in Xinjiang province. Over more than thirty years,
it has been through several economic cycles while meeting its debt obligations.
The rating also takes into account the following environmental,
social and governance (ESG) considerations.
In terms of environmental and social risks, some of Guanghui Group's
businesses, such as its oil and gas, coal mining and chemical
businesses, are exposed to high risks associated with tightening
emission standards and health and safety measures. However,
such risks are partially tempered by the company's track record of operational
continuity and business diversification.
In terms of corporate governance factors, Guanghui Group is a private
company, and its corporate governance and transparency are weaker
than those of publicly listed companies. The company's share ownership
is concentrated in Mr. Sun Guangxin, who holds a 50.1%
stake in the company as of the end of 2020. The second largest
shareholder, China Evergrande Group (Caa1 negative), owns
a 41% stake as of the same date.
The B3 senior unsecured bond rating is one notch lower than it would otherwise
be due to structural subordination risk. This risk reflects the
fact that the majority of Guanghui Group's claims are at its operating
subsidiaries and have priority over its senior unsecured claims at the
holding company in a bankruptcy scenario.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The outlook could be revised back to stable if Guanghui Group: (1)
maintains its business profile; (2) improves its liquidity;
(3) refinances its short-term debt and (4) manages to deleverage
with its adjusted debt/EBITDA at 8.0x or below.
On the other hand, Moody's could downgrade the ratings if (1) Guanghui
Group reduces its ownership in, or control over, China Grand
Auto; (2) China Grand Auto's credit profile weakens materially;
or (3) Guanghui Group fails to improve its liquidity or deleverage,
such that its adjusted debt/EBITDA exceeds 8.0x and its EBITDA/interest
falls below 1.0x-1.5x on a sustained basis.
The principal methodology used in these ratings was Retail Industry published
in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Xinjiang Guanghui Industry Investment (Group) Co., Ltd.
is a private company that operates in three key segments: auto dealerships,
energy and real estate. As of the end of March 2021, the
company held a 32.9% stake in China's largest auto dealer
by revenue, China Grand Automotive Services Co., Ltd.
Founded in 1989, the unlisted Xinjiang Guanghui was 50.1%
owned by Mr. Sun Guangxin as of the end of 2020. Mr.
Sun is the chairman, founder and controlling shareholder.
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Roy Zhang
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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China (Hong Kong S.A.R.)
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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.
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