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Rating Action:

Moody's downgrades Hilong to B3, places ratings on review for further downgrade

 The document has been translated in other languages

09 Jun 2020

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 debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

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

No Related Data.
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​
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