Hong Kong, June 30, 2020 -- Moody's Investors Service has assigned a Baa1 senior unsecured rating
to Weibo Corporation's proposed bond.
The rating outlook is stable.
The proceeds from the bonds will be used for general corporate purposes.
RATINGS RATIONALE
"The proposed bond will enhance Weibo's already strong liquidity,
provide financial flexibility amid a more challenging operating environment
as China's GDP growth slows, and secure long-term funding
for refinancing and business expansion," says Lina Choi, a
Moody's Senior Vice President.
Weibo had $2.3 billion in cash and cash-like investments
as of 31 March 2020, with no debt due over the next 24 months.
Weibo has maintained a net cash position since 2013, supported by
consistent free cash-flow generation and its prudent financial
management. Moody's expects the company will maintain this
strong financial profile, which is the key attribute supporting
its Baa1 ratings and stable outlook. Such a strong profile provides
a buffer against Weibo's expected elevated gross debt leverage over
the next 18 to 24 months, mainly as a result of the proposed bond
issuance.
"The Baa1 rating reflects our expectation that Weibo's credit metrics
will gradually strengthen as China's GDP growth recovers,
as well as its strong business profile with steady cash-flow generation,
a solid net cash position and a track record of prudent financial planning,"
adds Choi, who is also Moody's lead analyst for Weibo.
The proposed bond will cause Weibo's debt leverage, which
weakened to 2.7x for the 12 months ended 31 March 2020, to
increase further to 3.5x-4.0x in the coming 12 to
18 months. However, Moody's expects the company's
leverage will improve to levels appropriate for its Baa1 ratings as China's
economy recovers, and more significantly in 2022 after the company
settles its $900 million convertible bond.
Moody's expects downward pressure on Weibo's revenue and cash flow in
2020, due primarily to slowing economic growth in China.
The company generates the bulk of its revenue and cash flow from online
advertising, which is susceptible to economic disruptions.
In the three months ended 31 March 2020, Weibo reported a 19.0%
revenue decline from the same period in 2019. The weak performance
was due primarily to reduced economic activities during the coronavirus
outbreak.
Moody's expects the challenging operating environment to persist
for most of 2020, although the company's flexible cost structure
will help maintain adjusted EBITDA margins stable around 38%-40%.
Nevertheless, Moody's expects a recovery only from the second
half of 2020, and for both revenue and EBITDA to decline by 5%-10%
in 2020.
However, revenue and EBITDA should grow by 8%-12%
in 2021, driven primarily by a gradual economic recovery in China.
Moody's forecasts China GDP growth to rebound to 7% in 2021,
after 1% growth in 2020.
Moody's expects Weibo will stay prudent in capital investments and
any other significant spending and acquisitions over the coming 12 to
18 months, in view of the heightened uncertainty over revenue and
cash flow.
Weibo's Baa1 issuer rating reflects the company's strong market
position as a leading online social media platform in China (A1 stable)
and its ability to attract content providers, users and advertisers.
These factors allow the company to capture an increasing share of the
online advertising market. The rating also considers Weibo's
strategic cooperation with Alibaba Group Holding Limited (A1 stable),
which has helped boost revenue and cash flow, and the company's
strong financial profile with an above-industry-average
profit margin and steadily growing free cash flow.
However, Weibo's rating is constrained by China's competitive
online advertising market, rising acquisition risks related to the
company's efforts to gradually broaden its business scope, and regulatory
risks.
The stable rating outlook reflects Moody's expectation that Weibo
will maintain its strong position in China's online social advertising
market and continue to uphold a prudent financial policy. This
includes carefully balancing its growth targets with solid liquidity and
financial profiles, and a gradual improvement in gross leverage.
Weibo's rating also takes into account the following environment,
social and governance (ESG) considerations:
The high concentration of voting power in the company's key shareholder,
Sina Corporation, which comprises governance risk. This risk
is mitigated by the board oversight exercised through the presence of
a strategic shareholder, Alibaba, and by the presence of two
independent directors on its five-member board. Weibo's
management has also demonstrated a track record of prudent financial management.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the ratings in the longer term if Weibo achieves
its growth targets while maintaining a strong financial profile,
overcoming the execution risks associated with its business growth and
intense competition. Specifically, the rating could be upgraded
if the company significantly expands its business scale and scope while
maintaining a strong financial profile with adjusted debt/EBITDA consistently
below 1.0x, retained cash flow/debt at 50% to 80%,
and a solid net cash position.
Moody's could downgrade the ratings if the company (1) fails to
fend off competition and experiences substantial disruptions in its social
advertising business, which have the potential to weaken its revenue
growth and cash-flow generation for a prolonged period of time;
(2) deviates from its prudent financial policy and grows its user base,
business scope or content library at the expense of its currently strong
financial profile; or (3) engages in aggressive acquisitions that
strain its balance-sheet liquidity or weaken its overall risk profile;
or (4) supports Sina Corp.'s liquidity/capital spending/investment,
including through intercompany loans or upstream dividend payments.
Specifically, the issuer rating could be downgraded if (1) debt/EBITDA
fails to improve towards 2.5x in the coming 18 to 24 months,
(2) retained cash-flow coverage of debt declines on a sustained
basis, or (3) the company records a sustained and enlarging net
debt position.
The principal methodology used in this rating 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 this methodology.
Weibo Corporation is one of the largest online social media platforms
in China. The company provides services through its website "Weibo.com"
and through apps, allowing users to create and share content through
text, pictures and videos, and engage in social interaction.
Weibo was founded by Sina Corp., its parent, in 2009.
The company listed on NASDAQ in April 2014.
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
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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
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to rated entity, Disclosure from rated entity.
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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.
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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.
Lina Choi
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
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.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
