Hong Kong, May 27, 2019 -- Moody's Investors Service has assigned a first-time Baa3
issuer rating to Bright Food International Ltd. (BFI).
The outlook is stable.
RATINGS RATIONALE
BFI's Baa3 issuer rating reflects its ba3-level standalone
credit strength and a three-notch uplift based on Moody's
assessment of support from its parent, Bright Food (Group) Co.,
Ltd. (Baa2 stable).
The three-notch parental uplift reflects BFI's importance
to and close linkage with Bright Food Group. The support assessment
reflects BFI's 100% ownership by its parent, as well
as the parent's track record of providing support to BFI,
and the high reputational risk for the parent and the Shanghai Municipal
Government if BFI were to default.
BFI is the major operating and financing platform for its parent's
overseas investments.
Bright Food Group has consolidated the majority of its overseas assets
into BFI, and expects BFI to act as its overseas headquarters.
BFI also acts as its parent's overseas investment platform,
treasury center, as well as food distribution and business innovation
platform.
Moody's estimates that on a pro-forma basis, after
consolidating BFI and Bright Holdings (Hong Kong) Co., Ltd,
BFI accounted for 24% of the total assets of its parent in 2018.
BFI plays an important role in its parent's operations. For
example, a number of BFI's businesses are still jointly owned
with its parent's other business units, because the group
expects BFI and its other business units to collaborate in daily operations
to achieve synergies.
In addition, BFI plays a critical role in upgrading food supply
and enhancing food safety for its local market in Shanghai. These
two factors are important policy objectives for the Shanghai Municipal
Government.
BFI's standalone credit strength is underpinned by its diversified
geographic and business profile, strong brand awareness and leading
local market share of certain sub-segments.
BFI's diversified business segments include meat, sugar,
branded packaged food and food distribution, with synergies between
these segments. The company's overseas footprint in the past
years has also increased its geographic diversification. Revenue
from markets outside Mainland China, such as New Zealand,
Israel, Australia, Spain, and Hong Kong, accounted
for 68% of its total revenue in 2018 on a pro-forma basis.
BFI's businesses also benefit from strong brand awareness and leading
market positions in its respective local markets. For example,
its 77%-owned subsidiary, Tnuva, is the leading
food company in Israel, and its subsidiary Silver Fern Farms is
the largest meat processor in New Zealand in terms of beef and mutton
market share. These businesses provided BFI with stable cash flow
and good profitability.
BFI's financial profile is modest. Moody's expects
that BFI's leverage — as measured by adjusted retained cashflow
(RCF)/net debt — will register around 15% in 2019,
an improvement from around 12% in 2016. The improvement
is based on Moody's expectation that BFI will focus on the integration
of acquired businesses and efficiency improvements. Such improvements
will enable it to gradually lower its leverage over the next 2-3
years.
BFI's liquidity profile is satisfactory. The company held
consolidated cash-on-hand of around RMB10 billion at the
end of 2018. Moody's expects that BFI will generate approximately
RMB3.0-RMB3.5 billion of funds from operations in
2019. These cash resources are as against its short-term
maturing debt of around RMB10 billion, and capex and investments
of around RMB4 billion of in 2019.
Moody's expects that BFI will maintain good access to bank funding
and receive liquidity support from its parent, in times of need.
The outlook is stable, reflecting 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 continue to
be an important subsidiary of its parent, and will continue to obtain
support from Bright Food Group.
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 that will indicate upward pressure on its rating including
adjusted 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 that will indicate downward pressure on its rating including
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 lower levels of support from its parent,
for example, through a weakening of the parent's credit quality.
The principal methodology used in this rating was Global Packaged Goods
published in January 2017. 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.,
which in turn, is ultimately 100% owned by the State-owned
Assets Supervision and Administration Commission of the Shanghai Municipal
Government.
BFI is the major operating and financing platform of its parent's
overseas investments.
The local market analyst for this rating is Janet Lu, +86 (21)
2057-4029.
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.
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.
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
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.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
