Hong Kong, October 23, 2018 -- Moody's Investors Service has downgraded GCL New Energy Holdings Limited's
corporate family rating to B1 from Ba3 and the senior unsecured rating
on its USD bond to B2 from B1.
The ratings outlook is stable.
The rating actions conclude the review for downgrade that Moody's initiated
on 18 September 2018.
RATINGS RATIONALE
"The ratings downgrade reflects the deterioration in GCL New Energy's
credit quality, driven by the weakening credit profile of its parent,
GCL-Poly Energy Holdings Limited," says Ivy Poon, a
Moody's Vice President and Senior Analyst.
The heightened business and financial pressure arising from the challenging
upstream industry environment has limited the ability of GCL-Poly
to provide support for its subsidiary, GCL New Energy. In
particular, the government policy to curb capacity expansion in
solar power will temper sentiment in the upstream market in the near term.
Given that there is a degree of linkage between GCL New Energy and GCL-Poly,
such weakening in the parent's credit profile weighs on GCL New Energy's
ratings.
On the other hand, GCL New Energy's refined business strategy
to speed up the implementation of its asset light strategy — or
alternatively, its build-and-sell plan — would
reduce its financial leverage through the deconsolidation of debt associated
with the disposed projects and use of sales proceeds to repay debt.
However, uncertainty persists in relation to the execution of asset
light strategy, due to the lengthy negotiation process and precarious
structure of the disposal transactions. An aggressive sell down
will also result in an evolving capital structure and business profile,
as well as shrinking asset base.
To the extent that the company implements its asset light model strategy,
Moody's credit assessment will factor in the quality and mix of
the remaining assets, its updated growth strategy, and the
company's sustainable capital structure and credit metrics.
In the absence of major asset disposals and capital expenditure,
Moody's projects that the company's adjusted funds from operations
(FFO)/debt will register 5.0%-7.0%
in 2018-2019, and FFO interest coverage 1.8x-2.1x
over the same period. Such results position the company's credit
profile appropriately at B1 rating level.
GCL New Energy has a weak liquidity profile, due to Moody's
expectation that the company's cash sources over the next 12 months
will not be sufficient to cover its short-term debt and capital
expenditure program over that period.
Nevertheless, the company has started to receive government subsidies
associated with its projects registered under the 7th Batch of renewable
energy subsidy catalogue. This will moderately improve GCL New
Energy's working capital requirement.
The outlook on the ratings is stable, reflecting Moody's expectation
that GCL New Energy will maintain a stable credit profile, with
a gradual improvement in its financial metrics, after slowing its
capital expenditure program and implementing its asset light model at
a moderate pace.
While Moody's does not see near-term upward momentum for the ratings,
such a momentum could emerge over time if: 1) the regulatory framework
for China's solar power industry improves materially; (2) the
company establishes a meaningful operating track record and improves its
financial profile significantly; and (3) a material improvement occurs
in GCL Poly's credit profile.
Financial metrics indicative of a review for upgrade of GCL New Energy's
ratings include FFO/interest coverage exceeding 3.5x and FFO/debt
above 10% on a sustained basis, and assuming no material
change to the current business profile.
On the other hand, Moody's could downgrade the ratings if:
(1) the current supportive regulatory environment for solar power generation
shows material adverse changes; (2) GCL New Energy engages in aggressive
asset sales that jeopardize its business sustainability; (3) the
credit profiles of GCL New Energy or GCL Poly weaken materially;
and/or (4) evidence of cash leakage to GCL Poly via dividend distribution
or other means.
Financial indicators for a possible downgrade include FFO interest coverage
below 1.8x and FFO/debt below 4.0% over a prolonged
period, and assuming no material change to the current business
profile.
The principal methodology used in these ratings was Unregulated Utilities
and Unregulated Power Companies published in May 2017. Please see
the Rating Methodologies page on www.moodys.com for a copy
of this methodology.
GCL New Energy Holdings Limited is a privately owned solar power generation
company in China. The company's installed capacity totaled 7.1GW
in 26 Chinese provinces as well as overseas at 30 June 2018.
GCL New Energy was 62.28% owned by GCL-Poly Energy
Holdings Limited at 30 June 2018. GCL New Energy is the sole downstream
platform of its parent company.
Founded in 1996, GCL-Poly Energy Holdings Limited is an integrated
solar photovoltaic company.
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
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
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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.
Ivy Poon
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
Client Service: 852 3551 3077
Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
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
