Hong Kong, June 09, 2020 -- Moody's Investors Service has downgraded Hilong Holding Limited's
corporate family and senior unsecured ratings to B3 from B2 and the rating
on Hilong's proposed senior secured notes to B3 from B2.
At the same time, Moody's has placed the ratings on review for further
downgrade.
The outlook was changed to ratings under review from negative.
RATINGS RATIONALE
The downgrade and review for further downgrade follow Hilong's announcement
on 8 June 2020 of a second extension of the expiration deadline for its
exchange offer to 15 June, given its inability to fulfil the acceptance
conditions by the first extension deadline of 5 June.
The downgrade reflects Moody's concerns over Hilong's heightened
refinancing risk, given its weak liquidity and limited progress
in executing on its refinancing plans, including the debt exchange.
Hilong's liquidity is weak. At the end of 2019, the company
had cash and cash equivalents of RMB783 million and restricted cash of
RMB124 million. These liquidity sources and Moody's expected operating
cash flows of around RMB400 million over the next 12 months were insufficient
to cover its RMB1.7 billion of short-term debt, including
the USD165 million notes due in June 2020, RMB233 million of bills
payable, and an estimated RMB150 million of maintenance capital
expenditure over the same period.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's rating review will mainly focus on the progress of Hilong's debt
exchange and other refinancing plans. Any signs of a failure in
executing its refinancing plans or an inability to meet its obligations
could pressure the company's ratings.
The rating also takes into account the following environmental,
social and governance (ESG) considerations.
Firstly, the company is exposed to increasingly stringent regulations
for oil and gas operations and access to new resources. However,
Hilong has to date not experienced any major compliance violations related
to air emissions, water discharge or waste disposal.
Secondly, Moody's regards the coronavirus outbreak as a social
risk under its ESG framework, given the substantial implications
for public health and safety. The breadth and severity of the outbreak,
and the broad deterioration in credit quality and refinancing challenges
it has triggered, will have an impact on Hilong.
Thirdly, on the governance front, the company's ownership
is concentrated in its key shareholder, Jun Zhang, who held
a total 58.7% stake in the company at the end of 2019.
The company also shows weak financial management given its weak liquidity
and heightened refinancing risk.
The principal methodology used in these ratings was Global Oilfield Services
Industry Rating Methodology published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062654.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Hilong Holding Limited is an integrated oilfield equipment and services
provider. The company's four main businesses are (1) oilfield equipment
manufacturing and services, (2) line pipe technology and services,
(3) oilfield services, and (4) offshore engineering services.
The company listed on the Hong Kong Stock Exchange in 2011. Jun
Zhang, the chairman and founder of the company, is the controlling
shareholder, with a 58.7% equity interest as of the
end of 2019.
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.
For ratings issued on a program, series, category/class of
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Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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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.
Chenyi Lu
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
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
