Hong Kong, July 22, 2020 -- Moody's Investors Service has placed on review for upgrade the Caa1 corporate
family rating and senior unsecured rating of CAR Inc.
The outlook on the ratings has changed to ratings under review from negative.
The rating action follows CAR's announcement on 20 July 2020 that:
(1) UCAR Inc. has entered into a sale and purchase agreement with
Jiangxi Province Jinggangshan Beiqi Investment Management Co.,
Ltd. (Jinggangshan BAIC) for the acquisition of UCAR's 443
million CAR shares, or about 20.9% of CAR's
total issued share capital, for a total consideration of HKD1.4
billion.
(2) Amber Gem Holdings Limited, a subsidiary of Warburg Pincus &
Co., had signed an offer letter with Jinggangshan BAIC for
the proposed acquisition of no less than 171 million CAR shares,
or about 8.0% of CAR's total issued share capital,
by Jinggangshan BAIC for a total consideration of HKD529 million.
The transactions are subject to a number of conditions precedent,
including approvals or confirmations from relevant government and regulatory
authorities.
If both transactions are completed, Jinggangshan BAIC will hold
an approximate 28.9% stake in CAR.
Jinggangshan BAIC is 40%, 30% and 30% owned
by BAIC Group Industrial Investment Co., Ltd. (a wholly-owned
subsidiary of Beijing Automotive Group Co., Ltd. (BAIC
Group, Baa3 stable)), Jiangxi Provincial Investment Group
Co., Ltd. and Jiumu Ruiyuan (Beijing) Investment Co.,
Ltd., respectively.
"The review for upgrade reflects our expectation that the introduction
of Jinggangshan BAIC as a key shareholder could improve CAR's funding
access and weak liquidity profile," says Gerwin Ho, a Moody's
Senior Credit Officer and also Moody's Lead Analyst for CAR.
"Additionally, the change in shareholder could ease CAR's
refinancing and reduce governance concerns associated with UCAR's
shareholdership," adds Ho.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE
OF THE RATINGS
Although BAIC Group accounted for Jinggangshan BAIC as a long-term
equity investment in its 2019 financials, BAIC Group is a key shareholder
in Jinggangshan BAIC with a 40% stake. BAIC Group is one
of the top five automakers in China by unit sales, and is a state-owned
enterprise owned by the Beijing Municipal Government through its parent
company Beijing State-owned Capital Operation and Management Center
(A1 stable).
Jinggangshan BAIC's shareholding could help improve CAR's
access to funding, which is key to CAR's business operations
and its ability to refinance its USD300 million notes due February 2021.
From a governance perspective, while independent directors only
make up a minority of CAR's board, the company is a listed and regulated
entity. The company has a diversified shareholder base that includes
major shareholders such as Legend Holdings Corporation. Today's
action factors in the potential reduction in governance and refinancing
concerns that could result from the change in substantial shareholder
from UCAR to Jinggangshan BAIC.
Concerns around UCAR's shareholding arose in April, when Luckin
Coffee Inc. issued an announcement[1] regarding an internal
investigation into misconduct. At the time of the announcement,
Mr. Charles Zhengyao Lu was the chairman of Luckin Coffee's board
of directors, the chairman of the board of CAR and chairman of the
board of UCAR. Mr. Lu is currently the chairman of the board
of UCAR.
UCAR had pledged its CAR shares as collateral for some of its borrowing
as of 30 June 2019[2], creating the risk of a change of control
that would accelerate CAR's debt repayments and impact its operations.
Moody's review will focus on (1) the progress of the two transactions;
(2) the impact of Jinggangshan BAIC's shareholdership on CAR's
access to funding and refinancing plan; (3) any changes to the composition
of CAR's board of directors, such as Jinggangshan BAIC's participation;
and (4) CAR's business plan and financial policy.
The principal methodology used in these ratings was Equipment and Transportation
Rental Industry published in April 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1061773.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
CAR Inc., founded in 2007 and headquartered in Beijing,
provides car rental services, including car rentals and fleet rentals
in China. CAR listed on the Hong Kong Stock Exchange in September
2014.
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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issued on a support provider, this announcement provides certain
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support provider and in relation to each particular credit rating action
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provides certain regulatory disclosures in relation to the provisional
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to rated entity, Disclosure from rated entity.
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At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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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REFERENCES/CITATIONS
[1] Luckin Coffee press release 02-Apr-2020
[2] Company Interim Report 23-Aug-2019
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.
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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.
Gerwin Ho
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.)
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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
