Hong Kong, May 03, 2016 -- Moody's Investors Service has confirmed Beijing Enterprises Holdings
Limited's (BEHL) A3 issuer rating.
At the same time, Moody's has confirmed Beijing Enterprises
Group (BVI) Company Ltd's (BE BVI) A3 issuer rating.
Moody's has also confirmed the A3 senior unsecured rating for the bonds
guaranteed by BEHL or BE BVI, and issued by Mega Advance Investments
Limited, Talent Yield (Euro) Limited, Talent Yield Investments
Limited and Charter Style International Limited.
The outlook on the ratings is negative.
The rating actions conclude Moody's review for downgrade on all
the ratings above, initiated on 5 February 2016.
RATINGS RATIONALE
"The confirmation of BEHL's issuer rating reflects our assessment
that its credit profile will remain within the parameters of an A3 rating
category, and despite its acquisition of EEW Holdings GmbH,"
says Ada Li, a Moody's Vice President and Senior Analyst.
"Our assessment is based on the fact that BEHL partly funded the
acquisition of EEW Holdings GmbH with its robust cash balance, and
its credit profile is supported by the improving operating cash flows
from its stable gas and water businesses," adds Li.
BEHL's A3 issuer rating incorporates: 1) its standalone credit strength;
and 2) a two-notch uplift based on Moody's assessment of parental
support from Beijing Enterprises Group Company Limited (BE Group,
unrated) to BEHL, in times of stress.
As for BE BVI, the company's credit profile is closely linked with
that of BEHL, because the majority of BE BVI's businesses and assets
are held by BEHL.
The negative outlook on the ratings reflects [1] the medium term
integration risks associated with its acquisition of EEW Holdings GmbH
(EEW, unrated) on 2 March 2016. Moody's believes that
the acquisition will result in a deterioration of BEHL's financial
metrics, but such metrics should stay within the parameters of its
current rating; [2] concerns over BEHL's acquisitive expansion
strategies; and [3] material changes in its business profile
that will increase its business risks.
BEHL paid EUR1.438 billion to acquire 100% of EEW,
a German waste-to-energy company. The acquisition
was equivalent to around 10% of BEHL's reported consolidated assets
at end-2015.
Moody's estimates that the acquisition raised BEHL's adjusted debt by
near 30% on a pro-forma basis from the level seen at end-2015,
based on the understanding that BEHL partly funded the acquisition from
its cash balance. As a result, Moody's expects that BEHL's
adjusted debt to EBITDA and adjusted debt to capitalization will rise
to around 4.3x and 44% in 2016 from 3.8x and 38%
at end-2015.
Moody's also expects that BEHL's core gas and water treatment businesses
will continue to generate stable cash flows to back the group's
rapid expansion, given the supportive government policies for the
two sectors and rising environmental awareness across China.
In addition, Moody's anticipates that BEHL will continue to
receive a high level of support from the Beijing municipal government,
through its parent, BE Group. Moody's assessment of
support is based on BEHL's status as Beijing's leading natural
gas and water supplier, as well as the strong branding and relationship
between BE Group and the Beijing Government.
The negative outlook on BEHL's issuer rating reflects Moody's concerns
over the extent of synergies that can be achieved post acquisition,
as well as BEHL's ability to manage waste-to-energy projects
in Germany.
In addition, the negative outlook reflects Moody's expectation
that the Chinese central and local government's support to state-owned
enterprises could be weaker than Moody's had previously assessed.
Upward rating potential on BEHL's rating is limited, given
the negative outlook on the rating.
Downgrade pressure could arise if: 1) BEHL fails to integrate with
EEW; resulting in higher business risks; 2) BEHL pursues other
large debt-funded expansions; and/or 3) there are significant
adverse changes to the regulatory regime which negatively impact BEHL's
profitability and cash flow.
The financial indicators that would point to a downgrade of BEHL's
issuer rating include adjusted funds from operations/debt below 12%-15%,
and/or adjusted debt/capital in excess of 45% over a prolonged
period.
A downgrade of China's sovereign rating, as well as a material deterioration
in the Beijing municipal government's credit quality, or evidence
of weakening support for BE Group, will also pressure the BEHL's
issuer rating.
The principal methodology used in these ratings was Regulated Electric
and Gas Utilities published in December 2013. Please see the Ratings
Methodologies page on www.moodys.com for a copy of this
methodology.
Beijing Enterprises Holdings Limited (BEHL) is 60.96% controlled
by Beijing Enterprises Group Company Limited (BE Group, unrated),
which is 100% owned by the Beijing Municipal Government and supervised
by the Beijing State-owned Assets Supervision and Administration
Commission.
BEHL is an investment holding company. It operates three business
segments across China: piped gas operations, brewery operations,
as well as equity investments in sewage and water treatment services.
In 2015, BEHL reported HKD7.1 billion in profit before tax—excluding
corporate expenses—of which, 75% was from gas-related
businesses, 10% from brewery operations, and 15%
from sewage and water treatment services.
Beijing Enterprises Group (BVI) Company Limited (BE BVI) is an intermediate
offshore holding company, which holds a 55.35% interest
in BEHL. BE BVI is wholly owned by BE Group. BEHL contributed
almost 100% of BE BVI's total operating profit and 96% of
total assets in 2015.
EEW Holdings GmbH operates a portfolio of 18 energy-from-waste
plants in Germany and neighboring countries, with a total waste
treatment volume of approximately 4.4 million tonnes in 2015.
At end-2015, the company reported unaudited net profit after
tax and extraordinary items of EUR65.6 million, and consolidated
net assets of EUR451.9 million.
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.
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.
Ada Li
Vice President - Senior Analyst
Project & Infrastructure Finance
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
SUBSCRIBERS: (852) 3551-3077
Terry Fanous
MD-Public, Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077
Moody's confirms Beijing Enterprises' ratings; outlook negative
