Hong Kong, June 05, 2019 -- Moody's Investors Service has assigned a Baa3 issuer ratings 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has withdrawn the company's Ba1 corporate family rating (CFR).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.
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.
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.
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 entity is participating and the rated entity or its agent(s)
generally provides 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.
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.
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
