Hong Kong, July 13, 2020 -- Moody's Investors Service has affirmed the following ratings:
• Dalian Wanda Commercial Management Group Co., Ltd.'s
(DWCM) Ba1 corporate family rating (CFR);
• Wanda Commercial Properties (HK) Co. Limited's (Wanda
HK) Ba3 CFR; and
• The Ba3 senior unsecured ratings on the bonds issued by Wanda Properties
Overseas Limited and Wanda Properties International Co. Limited
Both Wanda Properties Overseas and Wanda Properties International are
wholly owned subsidiaries of Wanda HK. The rated bonds are guaranteed
by Wanda HK and supported by deeds of equity interest purchase undertakings
and keepwell deeds between DWCM, Wanda HK and the bond trustee.
All the outlooks of the above companies remain stable.
RATINGS RATIONALE
"DWCM's Ba1 CFR reflects its strong brand and track record
of developing and managing commercial properties in China, and improved
business profile after the disposal of its residential development business,"
says Kaven Tsang, a Moody's Senior Vice President.
"The rating also considers its sizable recurring rental income and
strong cash position," adds Tsang, also Moody's
Lead Analyst for DWCM. "These strengths temper the risk associated
with its high gross debt leverage, exposure to low-tier cities,
and the execution risks related to its expansion plan amid challenging
retail conditions and a slowing economy."
While the company's rental and management fee income will drop in
2020 from 2019 due to the coronavirus outbreak, the company's
operating performance should gradually improve as retail sales and foot
traffic to DWCM's retail malls have been recovering as the disruptions
fade.
Moody's expects the company's rental income will gradually
recover in H2 2020 and 2021, supported by the company's strong
retail mall management and track record. The company has registered
a high occupancy rate of over 99% and stable average rent of around
RMB100-110 per square meter per month for its retail malls over
the past 3-4 years.
As such, Moody's expects DWCM's net debt/EBITDA will
recover to around 4.5x in 2021 after an expected increase to around
6.0x in 2020 from 4.0x in 2019. Similarly,
its EBITDA/interest coverage will recover to 2.5x-3.0x
in 2021 after an expected decline to 2.1x in 2020 from 3.0x
in 2019.
These projected ratios continue to support DWCM's CFR at the Ba1
level.
The company's improved business profile, driven by reduced
development and industry risks after the disposal of its residential development
business, will mitigate the company's temporary weakness in
financial metrics.
The company's high exposure to low-tier cities and planned
expansion, also primarily in low-tier cities, entail
operating and execution risk amid China's slowing economic growth.
However, Moody's expects DWCM has the expertise and experience
to manage the business risks in low-tier cities. Its asset-light
strategy will also reduce its funding needs and the financial risk associated
with its expansion in low-tier cites.
DWCM's Ba1 CFR is also constrained by its private company status.
However, corporate governance risk is partly mitigated by the presence
of independent directors and reputable shareholders, such as Tencent
Holdings Limited (A1 stable) and other investors, who appoint their
representatives to the board of directors to balance the interests of
the shareholders, creditors and other stakeholders.
DWCM's liquidity is adequate, underpinned by its sizable amount
of RMB65.7 billion of cash on hand as of 31 December 2019 and stable
rental income of around RMB35-40 billion per annum. Moody's
expects the company's cash holdings and operating cash flow will
be sufficient to cover its maturing debt and committed capex for its portfolio
shopping malls over the next 12-18 months.
The stable outlook reflects Moody's expectation that DWCM will maintain
financial metrics supportive of its Ba1 CFR and have adequate cash resources
to support its operating and refinancing needs over the next 12-18
months.
The affirmation of Wanda HK's Ba3 CFR reflects the company's
standalone credit profile plus a two-notch uplift based on Moody's
expectation that the company will receive support from its parent DWCM
in times of need.
Moody's expectation of support considers DWCM's 100%
ownership of Wanda HK, the parent's full control over the company,
and Wanda HK's role as the primary platform for DWCM's offshore
funding and investment.
Moody's also expects DWCM will maintain its ability to provide support,
if needed, as reflected by its Ba1 CFR and its track record of providing
timely funding support to Wanda HK.
Wanda HK's standalone credit profile reflects its small scale, exposure
to the difficult operating conditions for its hotel business, weak
credit metrics and thin equity base, given its role as the group's
core platform for offshore funding and overseas investment. These
weaknesses are mitigated by its good liquidity and the parent's close
control over the company.
Wanda HK's liquidity position is good, underpinned by its
ample amount of cash holdings. As of year-end 2019,
the company's cash balance of about RMB7.5 billion covered
about 3.4x its short-term debt of about RMB2.2 billion
as of the same date. Moody's expects Wanda HK will have sufficient
liquidity resources to meet its operating and refinancing needs in the
next 12-18 months.
Wanda HK's stable outlook primarily reflects Moody's expectation
that DWCM will provide financial support to the company in times of stress,
given the close links between the two companies.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
DWCM's Ba1 CFR could be upgraded if it successfully achieves its business
growth plan and improves its financial metrics, with adjusted net
debt/EBITDA falling below 4.0x-4.5x and EBITDA/interest
rising above 3.0x-3.5x.
DWCM's Ba1 CFR could be downgraded if the company shows (1) weak liquidity,
(2) slower-than-expected growth in rental and management
fee income, or (3) a deterioration in its credit metrics.
Credit metrics that would indicate negative rating pressure include adjusted
net debt/EBITDA rising above 6.0x-6.5x and EBITDA/interest
falling below 2.0x on a sustained basis.
Additionally, any evidence of a material leakage of funds from DWCM
or a notable deterioration in the company's corporate governance and transparency
could strain its rating.
Wanda HK's rating could be upgraded if DWCM's CFR is upgraded,
and the company maintains its strategic and economic importance to the
parent.
However, a downgrade of DWCM's CFR will result in a downgrade of
Wanda HK's CFR and the ratings of its guaranteed bonds.
Furthermore, Wanda HK's rating could face downward pressure if its
standalone credit profile deteriorates, or there is a reduction
in the level of ownership by DWCM or the strategic and economic importance
of the company to DWCM is reduced.
The principal methodology used in rating Dalian Wanda Commercial Management
Group Co., Ltd. was REITs and Other Commercial Real
Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505.
The principal methodology used in rating Wanda Commercial Properties (HK)
Co. Limited, Wanda Properties Overseas Limited and Wanda
Properties International Co. Limited was Business and Consumer
Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Dalian Wanda Commercial Management Group Co., Ltd.
(DWCM) develops and operates commercial properties in China. At
the end of 2019, the company operated 323 rental malls across over
160 cities in China.
As of December 2019, the company was 45.0% owned by
Dalian Wanda Group Co., Ltd. The chairman of Dalian
Wanda Group, Wang Jianlin, and his family also owned about
6.8% of the company. Additionally, an investment
consortium led by Tencent Holdings Limited (Tencent, A1 stable)
and comprising JD.com, Inc. (Baa2 positive),
Sunac China Holdings Limited (Ba3 stable) and Suning Commerce Group Co.,
Ltd. owned 14.2% of the company.
Wanda Commercial Properties (HK) Co. Limited (Ba3 stable) is the
primary offshore funding and investment platform for DWCM. The
company's main assets include a 65.04% equity interest in
Hong Kong-listed Wanda Hotel Development Company Limited,
as well as investment in one overseas properties and hotel project in
the US.
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.
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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.
Kaven Tsang
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
Franco Leung
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
