Hong Kong, April 23, 2020 -- Moody's Investors Service has today placed on review for downgrade Fosun
International Limited's (Fosun) Ba2 corporate family rating (CFR)
and the Ba2 senior unsecured rating on the bonds issued by Fortune Star
(BVI) Limited and guaranteed by Fosun.
The outlooks were changed to ratings under review from stable.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE
OF THE RATINGS
The review for downgrade of Fosun's ratings reflects Moody's
concerns over the company's ability to maintain its credit metrics
at levels appropriate for its Ba2 CFR amid the coronavirus-led
economic downturn.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The tourism and consumer-related
businesses which accounted for 15% of Fosun's total investment
portfolio value at the end of 2019 -- have been significantly affected
by the shock given their sensitivity to travel restrictions, consumer
demand and sentiment.
Fosun is vulnerable to the risks of declines in its portfolio value and
dividend income over the next 12-18 months, given its debt-funded
investment strategy, reliance on short-term financing,
and insufficient coverage of operating and interest expenses by recurring
income -- predominantly dividend income from investees -- at
the holding company level. Fosun is also exposed to the risk of
credit contagion of its investees in these unprecedented financial market
volatility and challenging operating environments.
Fosun has a debt-funded investment strategy. Consequently,
its investment cash outflows have consistently exceeded its divesture
proceeds, and debt leverage has continued to rise. While
the company has taken measures to speed up its asset recycling and optimize
its debt maturity profile, Moody's expects funding gap will
persist over the next 12-18 months.
Fosun's liquidity is weak at the holding company level. Its recurring
income, mainly dividends from underlying investments, are
inadequate to cover interest and operating expenses. Additionally,
its cash on hand is also insufficient to cover the short-term debt
maturing over the next 12 months. While Fosun has maintained continued
access to the funding markets to meet its refinancing needs and holds
a large amount of marketable securities which could provide alternative
liquidity, Moody's expects the volatile financial market conditions
will make asset disposals and funding access more challenging.
Moody's expects Fosun's adjusted (funds from operations [FFO]
+ interest)/interest coverage ratios will remain well below 1x over
the next 12-18 months, and for market value-based
debt leverage (MVL) ratios to continue to rise and exceed 40% over
the same period. Such metrics are weak for its Ba2 CFR.
Additionally, the challenging economic and operating environment
could reduce cashflow and weaken the credit quality of its key investees
in tourism and consumer-related businesses in the next 12-18
months, increasing credit contagion risk for Fosun.
Moody's review will focus on (1) Fosun's ability to improve
its adjusted (funds from operations [FFO] + interest)/interest
coverage ratio and liquidity profile at the holding company level,
(2) its ability to narrow the funding gap between its investments and
divestures, (3) the extent to which the coronavirus-led economic
slowdown and volatile financial markets erode the value and credit quality
of Fosun's investments, and (4) Fosun's ability to lower
its leverage as measured by its MVL ratios.
An upgrade is unlikely in the near term given the review for downgrade.
However, the ratings could be confirmed if Fosun (1) raises its
[dividends + interest income]/[interest + operating
expenses coverage] to above 1x at the holding company level, and
(2) strengthens its liquidity position on a sustained basis.
Moody's could downgrade the rating if (1) Fosun's financial
profile deteriorates, with adjusted MVL rising above 40%-45%
or consolidated adjusted debt/capital rising above 55-60%,
both on a sustained basis; (2) the quality of its investment portfolio
deteriorates or contagion risk from its investees rises; or (3) the
company's reliance on short-term funding does not improve
and the gap between its recurring income and recurring expenses at the
holding company level remains.
In terms of environmental, social and governance (ESG) factors,
Moody's regards the coronavirus outbreak as a social risk under
its ESG framework, given the substantial implications for public
health and safety. Today's action reflects the impact on
Fosun of the breadth and severity of the shock, and the broad deterioration
in credit quality it has triggered.
In terms of governance risk, Moody's has also considered the concentrated
ownership in its controlling shareholder and chairman, Mr.
Guo Guangchang, who held a 60.3% stake in the company
as of 31 December 2019. Moreover, while the company has a
complex and evolving investment portfolio, limited transparency
exists around its investments for public investors.
These risks are partially mitigated by the company's listing on the Hong
Kong Stock Exchange, and by the presence on its 11-member
board of one non-executive director and four independent non-executive
directors. Furthermore, the company has provided regular
training to its directors, and has an audit committee, renumeration
committee and nomination committee in place to support the functioning
of the board.
The principal methodology used in these ratings was Investment Holding
Companies and Conglomerates published in July 2018 and available at https://www.moodys.com/research/Investment-Holding-Companies-and-Conglomerates--PBC_1125855.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Fosun International Limited (Fosun) is headquartered in Shanghai and was
listed on the Hong Kong Stock Exchange in 2007.
Fosun has diversified businesses spanning three broad categories:
(1) integrated finance (Wealth); (2) tourism, leisure,
consumer (Happiness); (3) and Pharmaceuticals, medical services,
health products (Health).
The estimated market value of Fosun's investment portfolio totaled around
RMB244 billion at the end of 2019. The consolidated group's revenue
totaled RMB143 billion in 2019.
The local market analyst for these ratings is Elaine Lai, +86
(212) 057-4018.
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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.)
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Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
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