Hong Kong, July 13, 2020 -- Moody's Investors Service has assigned a Baa3 senior unsecured rating
to the proposed EUR notes to be issued by Bright Food Singapore Holdings
Pte. Ltd., which will be irrevocably and unconditionally
guaranteed by Bright Food International Ltd. (BFI, Baa3 stable).
In addition, the proposed notes will be supported by a keepwell,
liquidity support and equity interest purchase undertaking covenants deed
from BFI's parent, Bright Food (Group) Co., Ltd.
(BFG, Baa2 stable).
The rating outlook is stable.
RATINGS RATIONALE
The Baa3 rating on the proposed notes reflects the irrevocable and unconditional
guarantee from BFI and the fact that the notes rank pari passu with BFI's
other senior unsecured obligations.
The proposed bond issuance will have a limited impact on BFI's debt leverage,
because the company will primarily use the proceeds to refinance existing
debt.
BFI's Baa3 issuer rating incorporates its ba3 standalone credit strength
and a three-notch uplift based on Moody's assessment of support
from its parent, BFG.
The three-notch parental uplift reflects BFI's importance to and
close linkage with BFG. The support assessment also reflects BFG's
100% ownership of BFI, its track record of providing support
to BFI, and the high reputational risks it faces along with the
Shanghai Municipal Government if BFI were to default. The keepwell,
liquidity support and equity interest purchase undertaking covenants deed
from BFG further demonstrate the importance of BFI to BFG.
BFI's standalone credit strength is underpinned by its diversified geographic
and business profile, strong brand awareness and leading local market
share in certain sub-segments.
On the other hand, BFI's standalone credit strength is constrained
by its modest financial profile. Moody's expects that BFI's
leverage, as measured by adjusted retained cash flow (RCF)/net debt,
will likely reach 18.2% and its adjusted debt capitalization
will reach 50.5% in 2020 after consolidating Bright Holding
(Hong Kong) Co., Ltd.
BFI has short-term debt of RMB12.3 billion maturing in 2020,
of which RMB6.2 billion has been refinanced with a bridge loan
as of May 2020. The company's cash balance of RMB7.9
billion at the end of 2019 is sufficient to cover the remaining RMB6.1
billion of short-term debt and its estimated interest expense of
RMB0.5 million.
Moody's expects BFI to incur RMB4.6 billion of investment
and working capital needs in 2020. However, Moody's
believes that part of BFI's capital spending is discretionary and expects
it to be able to roll over most of its short-term debt because
of (1) its affiliation with BFG, which has helped it establish strong
relationships with foreign banks and the offshore subsidiaries of major
Chinese banks, and (2) its successful track record of refinancing
through bank loans and bond issuances.
BFI rating also considers the following environmental, social and
governance (ESG) factors.
With respect to social risk, BFI has moderate exposure to demographic
and societal trends, because evolving consumer preferences could
affect the demand for its food products.
When assessing BFI's governance risk, Moody's has taken into
consideration its 100% ownership by BFG, which in turn is
100% owned by the State-Owned Assets Supervision and Administration
Commission of Shanghai Municipal Government (Shanghai SASAC). This
puts BFI under the local government's supervision and its management team
is appointed by the government. Unlike privately owned enterprises,
any change in management at BFI is not likely to affect its operations
and credit profile.
The stable rating outlook reflects Moody's expectation that over the next
12-18 months (1) BFI's business and financial profile will remain
stable; and (2) the company will remain an important subsidiary of
BFG and will continue to receive support from BFG.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Moody's could upgrade BFI's rating if the company (1) further enhances
its business profile, for instance by gaining stronger market positions
and achieving higher profit margins; (2) demonstrates disciplined
financial management in pursuing growth; and (3) materially reduces
its financial leverage.
Credit metrics indicative of upward pressure on the rating include adjusted
retained cashflow (RCF)/net debt exceeding 20%, and adjusted
debt to capitalization falling below 45% on a sustained basis.
Moody's could downgrade BFI's rating if (1) its business profile deteriorates
materially; and (2) the company pursues large-scale,
debt-funded acquisitions that result in significantly higher leverage
levels.
Credit metrics indicative of downward pressure on its rating include adjusted
RCF/net debt falling below 10%, and adjusted debt to capitalization
exceeding 65% on a sustained basis.
Moody's could also downgrade the rating, without a decline in the
company's standalone credit strength, if Moody's assesses that BFI
will receive a lower level of support from its parent, or there's
a weakening in the parent's credit quality, as reflected by a downgrade
of BFG's rating.
The principal methodology used in this rating was Consumer Packaged Goods
Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Bright Food International Ltd. (BFI) was established in 2011.
The company is fully owned by Bright Food (Group) Co., Ltd.
(BFG), which in turn is ultimately 100% owned by the Shanghai
SASAC.
BFI is the major operating and financing platform of BFG's overseas investments.
The local market analyst for this rating is Elaine Lai, +86
(212) 057-4018.
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
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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.)
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Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
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