Hong Kong, March 13, 2020 -- Moody's Investors Service has confirmed the B3 corporate family rating
(CFR) of Wanda Group Co., Ltd. (previously referred
as China Wanda Group Co., Ltd.).
At the same time, Moody's has changed the outlook on the rating
to negative from ratings under review.
This rating action concludes the review for downgrade initiated on 28
February 2020.
RATINGS RATIONALE
"The rating confirmation reflects our expectation that Wanda Group's
main operations, including oil refining and tire manufacturing,
will continue to support its business profile and refinancing even as
slowing economic growth dents earnings in the near term,"
says Ying Wang, a Moody's Vice President and Senior Analyst.
"The negative outlook reflects our concerns over Wanda Group's
elevated refinancing risk, given its weakened credit profile following
the prolonged shutdown of its oil refinery and expected slower demand
growth in 2020," adds Wang.
Wanda Group's Shandong oil refinery has been shut for maintenance
since early February 2020, but is expected to resume operations
later this month. Moody's expects operations at this core
segment will gradually stabilize over the year. The resumption
of its oil refinery operations combined with the continued operation of
its tire and electric cable facilities will support the company's
credit profile as it navigates the currently challenging operating environment
in China.
Nevertheless, Moody's expects Wanda Group's revenue
will decline 20% in 2020 before recovering in 2021, reflecting
the extended maintenance closure of its refining facility and softer demand
for its products amid slowing economic growth in China. Driven
by lower earnings, Moody's expects Wanda Group's leverage
-- as measured by adjusted debt/EBITDA -- will increase to 5.0x
over the next 12 months from 3.0x-3.5x during 2017-19.
Wanda Group's liquidity is weak, as it needs to address the upcoming
puttable domestic bonds that will become redeemable in 2020. At
the end of September 2019, the company's unrestricted cash
of RMB5.6 billion together with RMB2.4 billion of Moody's
expected cash flow from operations over the next 12 months were insufficient
to cover the company's RMB9.7 billion of debt maturities
over the next 12 months, including RMB4.6 billion of puttable
domestic bonds.
This refinancing risk is partially mitigated by its access to funding
from large domestic banks and onshore bond market.
For example, the company successfully refinanced its RMB1.05
billon bond which became puttable in January 2020, with 68%
of bondholders deciding to hold the bonds until maturity in January 2022.
Wanda Group has since successfully sold the remaining 32% to new
investors.
The B3 rating reflects China Wanda's long operational track record
since 1988, with a demonstrated ability to grow its operations and
build a strong customer base. The company maintains a diversified
business portfolio, including oil refining, tire and electric
cable manufacturing.
However, the company's rating is constrained by its weak liquidity,
small refining scale, and exposure to China's evolving industry
policies and regulations.
Moody's has also considered the following environmental, social
and governance (ESG) factors in its rating assessment.
First, Wanda Group's core oil refining operations and expansion
into petrochemical derivatives expose the company to carbon transition
risk. In addition, the company will need to continue investing
in technology and equipment to comply with the Chinese government's (A1
stable) tightened environmental requirements. Nonetheless,
Wanda Group has to date not experienced any major compliance violations
related to air emissions, water discharge or waste disposal.
Second, the company's privately-owned status with a
concentrated ownership and intercompany lending activities show governance
weakness. The parent company, which has a 50.24%
stake in Wanda Group, is a privately-owned company with low
transparency. Wanda Group has also provided intercompany loans
to its parent company. Finally, Wanda Group is also exposed
to external guarantees, which Moody's has factored in as adjusted
debt.
The negative rating outlook reflects Moody's expectation that Wanda Group's
refinancing risk will remain elevated over the next 12-18 months.
Upward rating pressure in the near term is unlikely, given the negative
outlook. However, Moody's could upgrade Wanda Group's
rating if it meaningfully improves its financial position and liquidity,
and maintains its business profile.
Moody's could downgrade the rating if Wanda Group fails to meet
its payment obligations, if its business profile deteriorates,
or if it fails to adhere to sound corporate governance standards.
The principal methodology used in this rating was Refining and Marketing
Industry published in November 2016. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Founded in 1988 and headquartered in Dongying, Shandong, Wanda
Group Co., Ltd. is a privately-owned company
operating multiple business segments including (1) refining (mainly refineries
of diesel and gasoline); (2) tire production; (3) the manufacture
of electric cables; (4) the manufacture of chemical products,
including methacrylate butadiene styrene and polyacrylamide; and
(5) electronics, including the production of polyimide film.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
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be assigned subsequent to the final issuance of the debt, in each
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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.
Ying Wang
Vice President - Senior Analyst
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
