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Rating Action:

Moody's affirms ratings of Dalian Wanda Commercial Management and Wanda HK; outlook stable

 The document has been translated in other languages

13 Jul 2020

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.

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 entities are participating and the rated entities or their agent(s) generally provide 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.

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

No Related Data.
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