Hong Kong, February 02, 2018 -- Moody's Investors Service has changed to stable from negative the
outlook on Parkson Retail Group Limited's B3 corporate family and senior
unsecured ratings.
At the same time, Moody's has affirmed all ratings.
RATINGS RATIONALE
"We have changed the outlook on Parkson's ratings to stable to reflect
the company's reduced refinancing risk, following the repurchase
of about half of its USD500 million notes due May 2018, through
a cash tender offer," says Danny Chan, a Moody's Analyst.
"The change in the ratings outlook is also because of its stabilizing
operating performance in 2017, despite the persistent structural
challenges in China's retail market," adds Chan.
Parkson's repurchase of its maturing USD notes — which was
funded by long-term onshore bank borrowing — has extended
its debt maturity profile; thereby alleviating near-term refinancing
pressure.
According to the company's announcement on 22 January 2018,
approximately USD258.9 million of the principal amount of the notes
— representing 53.44% of the total notes outstanding
— had been validly tendered. Following the settlement of
the offer, USD225.6 million of the notes will remain outstanding
and be paid down upon maturity in May 2018.
Moody's points out that the change in ratings outlook also incorporates
Moody's expectation that Parkson will: (1) be able to pay down the
remaining portion of its outstanding notes, provided that it continues
to have access to bank funding; (2) continue to rationalize its store
network and product mix, leading to a sustained improvement in its
operating performance and credit metrics; and (3) pursue a balanced
financial policy, maintain healthy liquidity and continue to address
its refinancing needs in advance.
Parkson's revenue and operating profit started showing some stabilization
over the past 12 months, due to the company's transformation
efforts. Same-store sales for 1H 2017 rose 0.1%
year-on-year, an improvement from the -6.7%
and -8.0% decline in 2016 and 2015, respectively.
The company also reported operating profit totaling RMB72 million during
the first three quarters of 2017 versus an operating losses of RMB131
million in the same period in 2016.
However, these improvements in store performance have yet to make
a significant impact on its financial performance. Moody's estimates
that Parkson's adjusted debt/EBITDA will stay around 7.0x-7.5x,
and retained cash flow/net debt — including principal guaranteed
deposits — will register around 7%-8% over
the next 12-18 months. These ratios will remain consistent
with its B3 ratings level.
Parkson's corporate family rating continues to reflect its long operating
history in China's highly fragmented department store industry,
its well-recognized brand name and national presence, and
the low level of collection risk in its concessionaire sales business
model.
On the other hand, its corporate family rating also reflects the
company's weak profitability and cash flow, as a result of intense
competition, and rising operating costs.
The ratings outlook is stable, reflecting Moody's expectation of
a moderate improvement in Parkson's credit metrics over the next
year, with operating margins enhanced by stable to positive trends
in retail sales and continued progress in achieving cost and restructuring
efficiencies.
The stable ratings outlook is further supported by Moody's expectation
that Parkson will maintain adequate liquidity.
Upward ratings pressure is limited, given the challenging conditions
in China's retail market and uncertainty over the company's ability to
turn around its weak revenue and profitability.
Nevertheless, positive ratings momentum on the company's standalone
credit profile could emerge over time if: (1) EBIT/interest exceeds
1.0x-1.5x; and (2) debt/EBITDA falls below 6.0x-6.5x
on a sustained basis.
Downward ratings pressure could emerge if: (1) Parkson cannot refinance
the remaining US-dollar bond in the near team; and/or (2)
its revenue, profitability, liquidity or financial metrics
deteriorate further.
Any sign that the company is extending financial support to its indirect
owner, the Lion Group, could also pressure Parkson's corporate
family rating.
The principal methodology used in these ratings was Retail Industry published
in October 2015. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Parkson Retail Group Limited, listed on the Hong Kong Stock Exchange,
is one of the largest operators of department store chains in China.
The company focuses on the middle- and middle-upper end
of the Chinese retail market.
At the end of 2017, Parkson was 54.97%-owned
by Parkson Holdings Berhad, a member of Malaysia's Lion Group.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
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.
Danny Chan
Analyst
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
