Hong Kong, September 30, 2022 -- Moody's Investors Service has placed the B1 corporate family rating (CFR) of Fosun International Limited (Fosun) on review for downgrade.
Moody's has also placed the B1 rating of the backed senior unsecured bonds issued by Fortune Star (BVI) Limited and unconditionally and irrevocably guaranteed by Fosun on review for downgrade.
At the same time, Moody's has changed the outlook to ratings under review from negative.
"The review for downgrade reflects Fosun's elevated refinancing risk due to the fast and significant decline of the market value of its listed assets, which further reduces the company's funding headroom. In addition, the company faces heightened execution risk related to its different fundraising plans amid capital market volatility and investors' increased risk averse sentiment," says Lina Choi, a Moody's Senior Vice President.
Moody's also believes that Fosun's financial flexibility will deteriorate because of the company's potential divestments or pledge of good quality and liquid assets to meet debt maturities.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Fosun's liquidity is weak at the holding company (holdco) level. Its cash on hand at the holdco level is insufficient to cover its short-term debt maturing over the next 12 months. In addition, its recurring income, which comprises mainly dividends from underlying investments, is inadequate to cover interest and operating expenses.
Moody's expects Fosun to face difficulties in refinancing its sizable short-term debt in public bond markets, both onshore and offshore, given the current weak market sentiment. A meaningful proportion of the company's sizable debt at the holdco level consists of onshore and offshore public bonds. Fosun's holdco has not issued unsecured long-term public bonds since the beginning of 2022.
Fosun will likely increase asset divestures to meet its debt repayment obligations. However, Moody's is concerned that capital market volatility will lead to a fast and significant decline of the market value of the company's listed assets. A lower market value of the portfolio will reduce Fosun's funding headroom, constraining the company's ability to raise liquidity via sales or pledge of assets.
Moody's estimates that the market value of Fosun's key holdings fell around 30% between end June and 27 September. This alone had led to a contraction of around 10% of the market value of the company's investment portfolio from the estimated portfolio value as of the end of June 2022. The drop will translate into a reduction of around RMB11 billion in borrowing headroom assuming a loan-to-value ratio of 40%.
Moody's also expects divestures of non-listed assets to be less predictable because of the potentially lengthy negotiation or regulatory approval process.
Furthermore, a potential acceleration of divestments or pledge of assets that are of good quality and liquidity in a down market will worsen Fosun's portfolio size and quality, further weakening its financial flexibility.
Fosun's portfolio is largely unencumbered so far, giving it the flexibility to raise funds through asset pledges.
Moody's review will focus on (1) Fosun's ability to raise funds, either through banks or asset sales to adequately meet refinancing needs; (2) the execution of the company's asset divestment plan, (3) Fosun's portfolio quality in terms of size, diversification, transparency, liquidity and unencumbered asset ratio after potential asset divestitures, and (4) any contagion risk from its key investees.
Moody's could confirm the ratings if Fosun (1) strengthens its liquidity position, including materially improving its cash to short-term debt ratio and reducing its reliance on short-term funding, (2) executes the asset divestments and other fundraising successfully to adequately meet refinancing needs, (3) maintains stable and good access to bank facilities, and (4) maintains a stable business and financial profile at the holdco level, such that the diversification and transparency of its investment portfolio remains largely stable, its adjusted (funds from operations [FFO]+interest)/interest ratio stays steady, its market value-based leverage remains below 40% and unencumbered asset ratio does not materially drop.
Moody's could downgrade Fosun's rating if (1) the company's access to funding remains weak, as indicated by Fosun having limited access to the bond market for a prolonged period or difficulty in renewing or obtaining bank facilities; (2) its asset divestures cannot proceed to meet its funding needs due to market volatility, execution uncertainty and regulatory reasons; or (3) the company's business and financial profiles weaken. This would be indicated by a deterioration in its portfolio quality after asset divestures, lower recurring income at the holdco level, and a material drop in listed and unencumbered assets of the portfolio, with a further weakening in its adjusted (FFO+interest)/interest, or its market value-based leverage remaining above 45%-50% on a sustained basis.
The principal methodology used in these ratings was Investment Holding Companies and Conglomerates published in July 2018 and available at https://ratings.moodys.com/api/rmc-documents/56472. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Fosun International Limited (Fosun) has diversified businesses spanning four broad categories: (1) integrated finance; (2) tourism, leisure and consumer; (3) pharmaceuticals, medical services and health products and (4) resources, environment and technology.
The estimated market value of Fosun's investment portfolio totaled around RMB289 billion as of the end of 2021. The consolidated group's revenue totaled RMB161 billion in 2021.
Fosun is headquartered in Shanghai and listed on the Hong Kong Stock Exchange in 2007.
The local market analyst for these ratings is Sue Su, +86 (10) 6319-6505.
REGULATORY DISCLOSURES
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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.
Lina Choi
Senior Vice President
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
