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Rating Action:

Moody's assigns Baa3 issuer rating to Geely and withdraws Ba1 CFR; outlook stable

 The document has been translated in other languages

05 Jun 2019

Hong Kong, June 05, 2019 -- Moody's Investors Service has assigned a Baa3 issuer rating to Geely Automobile Holdings Limited. At the same time, Moody's has withdrawn the company's Ba1 corporate family rating (CFR).

The ratings outlook is changed to stable from positive.

RATINGS RATIONALE

"The upgrade to Baa3 from Ba1 reflects Geely's strengthening business profile and growing market share, as a result of its improving product breadth and strength," says Gerwin Ho, a Moody's Vice President and Senior Credit Officer.

Despite the recent slowdown in China's auto market, Geely has further expanded its market share, positioning it as the third largest passenger vehicle brand and the seventh largest auto maker by unit sales in China (A1 stable).

Moody's expects Lynk & Co -- which commenced sales in December 2017 and is a joint venture between Geely, its parent Zhejiang Geely Holding Group Company Limited and Volvo Car Corporation (VCC), a subsidiary of Volvo Car AB (Ba1 stable) -- will help further increase vehicle sales and improve Geely's product breadth and strength in terms of price points and geographic coverage.

Geely owns 50% of the registered capital of the joint venture, while VCC and Zhejiang Geely own 30% and 20% respectively.

Moody's analysis of Geely's key credit metrics accounts for the 50%-owned Lynk & Co joint venture on a consolidated basis.

Moody's expects that Geely's market share will continue to expand in 2019, with unit sales growing about 4% year-on-year, which is a strong performance when compared to the broader auto industry in China.

"The upgrade also reflects Geely's track record of prudent financial management," adds Ho, who is also Moody's Lead Analyst for Geely.

Geely's debt leverage remained low in 2018, as represented by debt/EBITDA of 0.4x.

While Moody's expects Geely's debt will increase as it funds capacity expansion and investments in product development, EBITDA should also continue to grow and reach about RMB15 billion in the next 12-18 months.

Moody's expects debt leverage to remain low at around 0.5x in the next 12-18 months, which is strong for its rating category and provides it with a good buffer against potential market volatility and investment needs.

Moody's forecasts Geely's profitability, in terms of its EBITA margin, will reach about 8.6% in the next 12-18 months, compared to 9.4% in 2018, as the company's continued investments in research and development will be partly offset by greater operating leverage as its revenue scale continues to expand.

Geely's liquidity position is solid. At the end of 2018, its reported net cash holdings — excluding pledged cash — totaled RMB12 billion. The company has maintained a net cash position since the end of 2012.

Geely's Baa3 issuer rating reflects Moody's expectation that the company will achieve unit sales growth, given its growing market share and the fact that it primarily operates in China's large and growing passenger vehicle market.

Moreover, the company's sustained strong credit profile buffers it against industry cyclicality and supports its Baa3 issuer rating.

Geely's rating also factors in strong competition in China's auto market and the execution risks associated with its product and geographic diversification.

As an automaker, Geely is exposed to environmental risk. Meeting regional emission requirements, particularly those relating to CO2, is one of the most pressing and challenging objectives facing the auto industry over the medium to long term.

Geely has invested in research and development to develop new energy and electrified vehicles (NEEVs), including electric vehicles, battery electric vehicles, hybrid electric vehicles, mild hybrid electric vehicles and plug-in hybrid electric vehicles, which will help the company manage environmental risk. The company's NEEV unit sales reached 4.5% of total unit sales in 2018.

Geely's issuer rating is not affected by structural subordination. This is because the holding company runs significant operations that will likely support expected recovery for the holding company's debt.

The stable rating outlook reflects Moody's expectation that Geely will continue to grow its scale and product breadth while remaining disciplined in its financial management, as seen by low debt levels and a strong liquidity position.

Upward pressure on the ratings could emerge if Geely: (1) further improves its overall market share through the successful sales of new models; (2) further expands its product breadth and enhances its geographic diversity to a level more comparable to that of its global peers; (3) maintains a prudent financial policy that includes low debt leverage and a solid liquidity profile on a sustained basis, against the backdrop of its parent company's corporate activities.

Downward pressure could emerge if: (1) Geely does not grow its scale and gain market share; (2) its profitability declines, such that its EBITA margin drops below 6.5%-7.0% on a sustained basis; (3) its debt leverage -- as measured by debt/EBITDA -- rises above 1.5x-2.0x on a sustained basis; or (4) its liquidity profile deteriorates.

The principal methodology used in these ratings was Automobile Manufacturer Industry published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Geely Automobile Holdings Limited is one of the largest privately owned, local brand automakers in China. It develops, makes and sells passenger vehicles that are sold in China and overseas. Its chairman and founder, Mr. Li Shufu, and his family held a 45.35% stake in the company at the end of 2018. The company is incorporated in the Cayman Islands and listed in Hong Kong.

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.

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With reference to the withdrawal of the rating of Geely Automobile Holdings Limited: The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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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.

Gerwin Ho
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

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

No Related Data.
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