Hong Kong, July 28, 2020 -- Moody's Investors Service has downgraded the corporate family rating
(CFR) of Fosun International Limited (Fosun) to Ba3 from Ba2.
At the same time, Moody's has downgraded the senior unsecured rating
on the bonds issued by Fortune Star (BVI) Limited to Ba3 from Ba2.
The bonds are unconditionally and irrevocably guaranteed by Fosun.
The outlook has been changed to negative from ratings under review.
This rating action concludes the review for downgrade initiated on 23
April 2020.
"The downgrade and negative outlook reflect Moody's expectation
that Fosun's businesses will continue to face a challenging operating
environment amid the coronavirus-led economic downturn, adding
pressure to its weak liquidity, and leverage will remain elevated
over the next 12-18 months," says Lina Choi,
a Moody's Senior Vice President.
RATINGS RATIONALE
Fosun's Ba3 corporate family rating reflects its (1) large and diversified
investment portfolio; (2) proven investment track record; and
(3) holdings of substantial amount of marketable securities.
However, the rating is constrained by Fosun's (1) high and increasing
debt leverage due to its debt-funded investment strategy,
(2) reliance on short-term funding for long-term investments,
(3) weak interest coverage at the holding company level, and (4)
increasing credit contagion risk.
Moody's expects Fosun's funding gap -- the difference between
its investments and divestures -- will persist over the next two
to three years. Consequently, its market value-based
debt leverage (MVL) ratio is expected to rise and exceed 40% over
the same period, despite the measures that the company has taken
to speed up its asset recycling.
Fosun has weak liquidity -- as measured by adjusted (funds from operations
[FFO] + interest)/interest coverage ratio -- at the holding
company level. Moody's expects this ratio will remain well
below 1x over the next 12-18 months as its recurring income --
i.e. mainly dividends from underlying investments --
will be inadequate to cover its interest and operating expenses.
Additionally, Fosun relies heavily on short-term debt to
fund its long-term investments, and its cash on hand is insufficient
to cover its short-term debt maturing over the next 12 months.
While Fosun has maintained good access to domestic funding markets to
meet its refinancing needs and holds a large amount of marketable securities
which could provide alternative liquidity, Moody's expects the volatile
financial market conditions will make funding access and asset disposals
more challenging for Fosun.
Moreover, Moody's expects the challenging economic and operating
environment will pose increasing credit contagion risk for Fosun due to
the reduced cash flow and weakened credit quality of its key investments
in tourism and consumer-related businesses in the next 12-18
months.
In terms of environmental, social and governance (ESG) factors,
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety. Today's action reflects the impact on Fosun of the
breadth and severity of the shock, and the deterioration in credit
quality it has triggered.
In terms of governance risk, Moody's has also considered the concentrated
ownership of Fosun in its controlling shareholder and chairman,
Mr. Guo Guangchang, who held a 60.3% stake
in the company as of 31 December 2019. Moreover, while the
company has a complex and evolving investment portfolio, there is
limited transparency around its investments for public investors.
These risks are partially mitigated by the company's listing on the Hong
Kong Stock Exchange, and by the presence on its 12-member
board comprising of two non-executive directors and four independent
non-executive directors. Furthermore, the company
has provided regular training to its directors, and has audit,
remuneration and nomination committees in place to support the functioning
of the board.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, an upgrade of the ratings is unlikely
in the near future. However, the outlook could return to
stable if Fosun (1) strengthens its liquidity position, including
a lower reliance on short-term funding, and (2) maintains
its adjusted MVL below 45-50% or consolidated adjusted debt/capitalization
below 55%, all on a sustained basis.
Moody's could downgrade Fosun's rating if (1) the quality
of the company's investment portfolio deteriorates or contagion risk from
its investees rises, (2) its adjusted MVL remains in excess of 45-50%
or consolidated adjusted debt/capitalization stays above 55%,
(3) the company's reliance on short-term funding increases,
which results in short-term debt to total reported debt rising
above 50%, or (4) the company's investment portfolio transparency
weakens, with the percentage of listed assets falling below 40%
of the total investment portfolio value, all on a sustained basis.
The principal methodology used in these ratings was Investment Holding
Companies and Conglomerates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125855.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Fosun International Limited (Fosun) is headquartered in Shanghai and was
listed on the Hong Kong Stock Exchange in 2007.
Fosun has diversified businesses spanning three broad categories:
(1) integrated finance (Wealth); (2) tourism, leisure and consumer
(Happiness); (3) and pharmaceuticals, medical services and
health products (Health).
The estimated market value of Fosun's investment portfolio totaled around
RMB244 billion at the end of 2019. The consolidated group's revenue
totaled RMB143 billion in 2019.
The local market analyst for these ratings 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.
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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
