Hong Kong, August 28, 2018 -- Moody's Investors Service has changed to positive from stable the
outlook for Geely Automobile Holdings Limited (Geely).
Moody's has also affirmed the company's Ba1 corporate family rating.
RATINGS RATIONALE
"The positive rating outlook reflects our expectation that Geely will
continue to strengthen its business profile over the next 12-18
months, with meaningful growth in its overall market share as a
result of improvements in its product breadth and strength,"
says Gerwin Ho, a Moody's Vice President and Senior Credit Officer.
"At the same time, we expect the company's track record
of maintaining a strong credit profile will accommodate its investment
needs and continue to support its rating," adds Ho.
Geely's unit sales grew 44% year-on-year in
the first seven months of 2018, mainly reflecting robust demand
for Geely-branded models. The company's growth rate
far outpaced the 4% registered by China's auto industry over the
same period, resulting in a further expansion of its market share,
and positioning it as the third largest passenger vehicle brand and the
seventh largest auto maker by unit sales in China.
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 support
Geely's growth in vehicle sales and improve its product breadth
and strength in terms of price points and geography via its plan to sell
vehicles in Europe and the US.
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,
with unit sales growing about 27% during full year 2018,
versus about 63% in 2017.
Moody's expects Geely's unit sales to reach about 1.9
million in 2019; which is comparable to some of its global peers.
Geely's track record of adopting a prudent financial policy also supports
its positive rating outlook.
Geely's debt leverage was low in 2017, as represented by debt/EBITDA
of 0.5x.
While Moody's expects debt level to rise to fund capacity expansion
and investment in product development, we expect EBITDA to continue
to grow and reach about RMB18 billion in the next 12-18 months.
Moody's expects debt leverage to remain low at around 0.8x in the
next 12-18 months, which is strong for the Ba rating category.
Moody's forecasts Geely's profitability, in terms of EBITA margin,
will reach about 9.0% in the next 12-18 months versus
6.3% in 2017, reflecting greater operating leverage
as the company's revenue scale grows and its lower level of start-up
expenses versus 2017.
Geely's liquidity position also remains solid. At the end of June
2018, its reported net cash holdings totaled RMB13 billion.
The company has maintained a net cash position since the end of 2012.
Geely's Ba1 corporate family rating reflects Moody's expectation that
the company will achieve robust unit sales growth, given its growing
market share and the fact that it principally operates in China's (A1
stable) large and rapidly growing passenger vehicle market.
Moreover, the company's sustained strong credit profile buffers
it against industry cyclicality and supports its Ba1 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.
Upgrade pressure on the rating could emerge if Geely: (1) improves
its overall market share through the successful sales of new models,
including those under the Lynk & Co joint venture; (2) expands
its product breadth and enhances its geographic diversity to a level comparable
with that of its global peers; and (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.
On the other hand, the rating outlook could return to stable if
(1) the company does not grow its scale and gain market share; (2)
Geely's profitability declines, such that its EBITA margin drops
below 6.0-6.5% on a sustained basis;
(3) its debt leverage (as measured by debt/EBITDA) increases, exceeding
2.0x on a sustained basis; or (4) its liquidity profile deteriorates.
The principal methodology used in this rating 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. Geely develops, manufactures
and sells passenger vehicles that are sold in China and globally.
Its chairman and founder, Mr. Li Shufu, and his family,
held a 45.7% stake in the company at the end of 2017.
The company is incorporated in the Cayman Islands and listed on the Hong
Kong Stock Exchange.
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
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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
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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
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For any affected securities or rated entities receiving direct credit
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and whose ratings may change as a result of this credit rating action,
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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Please see www.moodys.com for any updates on changes to
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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.
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
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
