Hong Kong, February 28, 2020 -- Moody's Investors Service has downgraded Wanda Group Co.,
Ltd.'s corporate family rating (CFR) to B3 from B1.
At the same time, Moody's has placed the rating on review
for downgrade and changed the outlook to rating under review from negative.
RATINGS RATIONALE
"The downgrade and review for downgrade reflect the increasingly challenging
operating environment facing the refining industry, which in turn
is further raising Wanda Group's already high refinancing risk,"
says Ying Wang, a Moody's Vice President and Senior Analyst.
"Slower demand growth, excessive industry capacity in China
and higher business volatility will heighten operational risk and increase
pressure on Wanda Group's revenue and profitability over the next
12-18 months, reducing the company's buffer against
industry volatility and weakening its liquidity profile,"
adds Wang.
Wanda Group's refinancing risk has increased over the past 12-18
months, with a large amount of puttable domestic bonds becoming
redeemable in 2020.
Moody's expects Wanda Group's credit profile to deteriorate
in 2020, as slowing economic growth is weakening Chinese demand
for refining and petrochemical products, and as excess refining
capacity will pressure pricing.
Wanda Group's liquidity remains weak. 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.
Moody's review will mainly focus on (1) Wanda Group's refinancing plans;
any signs of failure in executing its refinancing plans or an inability
to meet its obligations could pressure the company's rating and (2) the
company's ability to stabilize its business in terms of key drivers,
revenue and profitability amid the current industry environment.
Any disruption to its operations would also pressure the rating.
Moody's has considered the following environmental, social
and governance (ESG) issues 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 keep investing
in technology and equipment to comply with the Chinese government's 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 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
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
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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
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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
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and whose ratings may change as a result of this credit rating action,
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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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