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Rating Action:

Moody's affirms Jardine Strategic Holdings' A1 rating; outlook stable

13 May 2020

Hong Kong, May 13, 2020 -- Moody's Investors Service has affirmed Jardine Strategic Holdings Limited's A1 issuer rating. The outlook remains stable.

RATINGS RATIONALE

"The rating affirmation reflects Jardine Group's diversified business portfolio across Asia, its maintenance of a strong financial profile throughout the cycles and its excellent liquidity," says Gloria Tsuen, a Moody's Vice President and Senior Credit Officer.

"The group's significant financial buffers as of the end of 2019 and steady cash flow contributions from its stable businesses will support healthy financial metrics over the next 1-2 years, despite a weakening in earnings as a result of deteriorating economic conditions amid the coronavirus pandemic," adds Tsuen.

Jardine's earnings and cash flow will fall in 2020, and its credit ratios will weaken because of its subsidiary The Hongkong Land Company, Limited's (A2 stable) sizeable land acquisition, as well as due to weaker demand against the backdrop of the pandemic-led disruptions and weakening macro conditions.

Consequently, Moody's expects that Jardine's adjusted funds from operations (FFO)/net debt (excluding debt from financial services) will decline to 35%-40% in 2020 from around 63% in 2019, and its adjusted FFO interest coverage to around 7.0x from 9.9x over the same period.

However, these ratios are likely to improve to around 45% and 7.5x-8.0x respectively in 2021 following a rebound in global and regional economies. These ratios are in line with the A1 rating category.

The stable, significant cash flow contributions from Hongkong Land's office rental and Dairy Farm International's non-discretionary retail businesses will partly offset a more significant earnings decline in the group's more cyclical businesses.

The group's capital structure will also remain strong. Moody's estimates that its adjusted net debt/net capitalization will remain low at about 19% this year, although higher than the 16% registered in 2019.

Jardine continues to have excellent liquidity that will also help it weather the economic downturn. It had about $6.9 billion of cash (excluding financial services) at the end of 2019, which will be more than sufficient to cover the $4.7 billion of debt (excluding financial services) maturing over the next 12 months.

These strengths are partly offset by the group's exposure to growth markets in Southeast Asia, where business risk is relatively high.

The rating also takes into account the following environmental, social and governance (ESG) factors.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

In terms of governance considerations, the rating factors in Jardine Group's complex structure comprising two holding companies with a cross-shareholding structure to shield the group from a possible hostile takeover. Although this structure creates analytical complexity, it helps maintain policy and ownership continuity.

The rating also considers Keswick family's control of the group despite an only around 7% ownership. However, that concern is mitigated by the group's listed status, a proven track record of prudent management, and no major cash leakage to shareholders.

The stable outlook reflects Moody's expectation that Jardine Group's operating profile will remain steady and financial leverage will stay healthy over the next one to two years.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade is unlikely over the next two to three years, given the group's high exposure to Southeast Asia, especially Indonesia (Baa2 stable).

The rating could be upgraded in the longer term if (1) Jardine Group increases the proportion of stable businesses in developed markets in its portfolio; and (2) the group maintains free cash flow generation, strong credit metrics and liquidity.

Moody's could downgrade the rating if Jardine Group's FFO/net debt declines below 40%-50% and FFO interest coverage falls below 8x-9x. These credit ratios exclude debt related to the group's financial services companies and incorporate Moody's expectation that these companies will continue to operate on a standalone basis and will not require any material funding support from the group.

Furthermore, Moody's could downgrade the rating if operating risk of the business portfolio increases materially or liquidity deteriorates significantly, indicating a change in the group's conservative financial management policy.

The principal methodology used in these ratings was Investment Holding Companies and Conglomerates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125855. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Founded in 1832, Jardine Group has a broad business portfolio across Asia. It has a significant presence in motor vehicles and related operations, property investment and development, food retailing, health and beauty, home furnishings, engineering and construction, transport services, restaurants, luxury hotels, financial services, heavy equipment, mining, energy and agribusiness.

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_1133569.

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.

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.

Gloria Tsuen, CFA
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

Chris Park
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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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