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Rating Action:

Moody's downgrades ratings of Dalian Wanda Commercial Properties and Wanda HK

 The document has been translated in other languages

29 Sep 2017

Hong Kong, September 29, 2017 -- Moody's Investors Service has downgraded the ratings of Dalian Wanda Commercial Properties Co., Ltd. (DWCP) and Wanda Commercial Properties (HK) Co. Limited (Wanda HK).

The affected ratings are as follows:

• DWCP's issuer rating of Baa3 has been downgraded to Ba1 and withdrawn, and the company has been assigned a Ba1 corporate family rating;

• Wanda HK's corporate family rating has been downgraded to Ba3 from Ba1;

• The senior unsecured ratings for the bonds issued by Wanda Properties Overseas Limited and Wanda Properties International Co. Limited have been downgraded to Ba3 from Ba1. Both companies are wholly owned subsidiaries of Wanda HK.

The rated bonds are guaranteed by Wanda HK and supported by deeds of equity interest purchase undertaking and keepwell deeds between DWCP, Wanda HK and the bond trustee.

The issuers of the rated bonds have maintained — in interest reserve accounts — the equivalent of two periods of interest payments on the bonds.

The outlooks on all ratings are negative.

RATINGS RATIONALE

"The downgrade of DWCP's rating to Ba1 reflects our concerns over the company's weakened liquidity position — due to inadequate offshore cash to meet the potential repayment of its offshore bank loans of around $1.7 billion — arising from potential non-compliance of certain maintenance requirements related to the company's existing borrowing obligations," says Kaven Tsang, a Moody's Vice President and Senior Credit Officer.

While the company had around RMB137.7 billion of cash as of end-June 2017 — an amount that can fully cover the potential repayment — most of the funds is situated onshore.

Moody's notes that DWCP does not currently have sufficient offshore cash to cover any prepayments in the event that offshore lenders ask for early repayment of loans.

This heightened repayment risk reflects that the company has not proactively managed its offshore liquidity position, against the backdrop of a tighter control of cross border fund transfers out of the country.

Such weak liquidity and treasury management — in particular, the mismatch in offshore cash resources to offshore debt payment obligations — no longer supports its investment grade profile.

Nevertheless, Moody's expects that the proceeds from the company's pending asset sales to Sunac China Holdings Limited (B2 negative) and Guangzhou R&F Properties Co., Ltd. (Ba3 negative) and the company's sizable recurring rental income from its large and diversified portfolio of investment properties can support part of its ongoing funding needs and buffer debt repayment risks to some extent.

DWCP's Ba1 corporate family rating also reflects its established brand name, leading market position, track record of developing commercial properties in China, and the likely improvement in its financial metrics, after the completion of asset sales. However, the company's business and execution risks will rise, as it accelerates the implementation of its new business model by increasing its bulk sales of retail malls.

The negative outlook on DWCP's rating incorporates Moody's concerns over the business execution risk associated with the company's changing business model and its ability to timely arrange funding to service its offshore debt prepayments.

An upgrade of DWCP's Ba1 corporate family rating is unlikely in the near term, given the negative rating outlook.

Nevertheless, the rating outlook could return to stable if DWCP: (1) meets or cancels the aforesaid maintenance requirements of its debt obligations; (2) has sufficient liquidity to manage its offshore debt repayment; (3) meets its business plans for both its traditional property development business and its bulk sales of malls, as well as achieves growth in rental and management fee income.

Downward rating pressure could emerge, if the company fails to timely arrange funding to service its prepayment needs, which in turn results in an increase in liquidity and repayment risks.

The rating will also be downgraded if: (1) its contracted sales performance or growth in rental and management fee income is weaker than Moody's expects; (2) the company incurs a more-than-expected amount of debt, due to land acquisitions and slow contracted sales or collections of the proceeds from its bulk sales of malls; or (3) its credit metrics deteriorate on a sustained basis. An indication of deterioration includes EBIT/interest coverage falling below 2.5x and rental and management fee income/interest below 80%.

Additionally, any evidence of a material leakage of funds from DWCP, or a notable deterioration in the company's corporate governance and transparency could pressure its rating.

Moody's downgraded Wanda HK's corporate family rating and the senior unsecured bond ratings of its guaranteed bonds to Ba3 from Ba1, due to its weakened liquidity and increased refinancing risk, as well as a weakening in DWCP's ability to provide support to Wanda HK. The Ba3 ratings factor in two notches of parental support, based on Moody's assessment that Wanda HK will likely receive support from DWCP in times of need.

Moody's expectation of support from DWCP to Wanda HK is based on: (1) Wanda HK remaining 100% owned by DWCP and the parent exercising management control over Wanda HK; (2) Wanda HK continuing to demonstrate its position as the primary platform for DWCP's offshore funding and international expansion; and (3) DWCP showing a track record of extending support to Wanda HK's offshore financing, through deeds of equity interest purchase undertaking and keepwell deeds for its bonds, and guarantees to its bank loans.

Wanda HK's standalone credit profile continues to reflect its weak credit metrics, short history, and roles as the group's core platform for offshore funding and overseas investments.

The negative outlook on Wanda HK's corporate family rating primarily reflects the negative outlook on DWCP's corporate family rating, given the close linkage between the two companies in terms of credit quality and ratings.

Upward pressure on Wanda HK's corporate family rating is limited in the near term, given the negative outlook.

Nevertheless, the outlook could change to stable if: (1) DWCP's rating outlook is revised to stable; and (2) Wanda HK successfully executes its business plan and maintains its strategic and economic importance to DWCP.

A downgrade of DWCP's rating will result in a downgrade of Wanda HK's rating and the rating on Wanda HK's guaranteed bonds.

Furthermore, Wanda HK's rating could come under downgrade pressure if its standalone credit profile deteriorates. Such a situation would include: (1) a failure to complete its overseas projects over the next 3-5 years; and (2) weaker-than-expected revenues and operating cash flow. Any evidence of a reduction in the level of ownership held by DWCP, or in the strategic and economic importance of the company to DWCP could also prove negative for Wanda HK's rating.

The principal methodology used in these ratings was Homebuilding And Property Development Industry published in April 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Dalian Wanda Commercial Properties Co., Ltd. (DWCP) develops, operates and sells integrated properties in China, including shopping malls, offices, houses and hotels.

Wanda Commercial Properties (HK) Co. Limited is the core offshore funding and investment platform for DWCP. It is also a wholly owned subsidiary of DWCP. Its main assets include a 65% equity interest in Hong Kong-listed Wanda Hotel Development Company Limited, as well as investments in five overseas property and hotel projects in the UK, Australia and the US.

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.

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

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.

Kaven Tsang
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

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

No Related Data.
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