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Rating Action:

Moody's revises outlooks for Dalian Wanda Commercial Management and Wanda HK to stable from negative

 The document has been translated in other languages

04 Jun 2018

Hong Kong, June 04, 2018 -- Moody's Investors Service has revised the outlook of the following companies to stable from negative:

• Dalian Wanda Commercial Management Group Co., Ltd. (DWCM, formerly Dalian Wanda Commercial Properties Co., Ltd.);

• Wanda Commercial Properties (HK) Co. Limited (Wanda HK);

• Wanda Properties Overseas Limited; and

• Wanda Properties International Co. Limited

At the same time, Moody's has affirmed the following ratings:

• DWCM's Ba1 corporate family rating;

• Wanda HK's Ba3 corporate family rating;

• Wanda Properties Overseas Limited's and Wanda Properties International Co. Limited's Ba3 senior unsecured bond ratings. 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 undertakings and keepwell deeds between DWCM, Wanda HK and the bond trustee.

RATINGS RATIONALE

"The change to a stable ratings outlook reflects our view that the debt refinancing risk of both DWCM and Wanda HK has substantially reduced after the repayment of the $1.7 billion offshore bank loans," says Kaven Tsang, a Moody's Vice President and Senior Credit Officer.

The offshore debt repayment was funded by disposals of offshore businesses and transferring out onshore cash. This development is positive to the company's funding management to service offshore debt obligations.

Moreover, DWCM has a funding plan to repay Wanda HK's guaranteed notes for $600 million due November 2018.

"The stable ratings outlook also reflects the fact that DWCM will have adequate cash resources to maintain its onshore property businesses," says Tsang who is also the Lead Analyst for DWCM.

At the end of 2017, DWCM reported RMB120.7 billion of cash on hand. This cash balance and the estimated annual property development cash inflow of around RMB60 billion over the next 12 months will be more than adequate to fund its annual construction costs of around RMB78 billion for its property development business and building new investment commercial properties.

DWCM's Ba1 corporate family rating (CFR) reflects the company's established brand name, leading market position, and track record of developing and managing commercial properties in China.

The Ba1 rating also considers the company's improving business risk, given that it will exit the relatively more volatile property development business at the end of the 2020.

During the transition period over the next 2-3 years, Moody's expects that improvements to the company's credit metrics will not be material, with debt/EBITDA and EBIT/interest registering around 5.5x and 3x. Nevertheless, these levels will support its CFR of Ba1.

DWCM's asset-light business model to grow fee revenues is exposed to asset sell down risk, especially in a down market. Nevertheless, the company has a good financial buffer against such risk. Its scale is also large, as measured by total assets of RMB689 billion ($109 billion) at 31 December 2017. And, DWCM's liquidity levels are good, as measured by cash on hand of RMB120 billion ($19 billion) at 31 December 2017, and high rental income of around RMB24.7 billion ($3.9 billion) in 2017.

DWCM's Ba1 CFR could be upgraded if it achieves growth in rental and management fee income, such that adjusted debt/EBITDA falls below 4.5x-5.0x, EBIT/interest rises above 4.0x, and rental and management fee income/interest register above 2.5x.

On the other hand, the Ba1 CFR could be downgraded if the company shows: (1) a weak liquidity position; (2) slower-than-expected growth in rental and management fee income; or (3) a deterioration in its credit metrics.

Credit metrics indicating rating downgrade pressure include adjusted debt/EBITDA rising above 6.0x-6.5x, and EBIT/interest falling below 2.5x on a sustained basis.

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

Moody's has revised Wanda HK's rating outlook to stable from negative, reflecting Moody's expectation that DWCM will provide financial support to Wanda HK in times of stress, given the close linkage between the two companies.

Wanda HK's Ba3 CFR and the Ba3 senior unsecured bond ratings of its guaranteed bonds reflect the company's standalone credit profile plus two notches of parental support, based on Moody's assessment that Wanda HK will likely receive support from DWCM in times of need.

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

Wanda HK's standalone credit profile reflects its small scale, weak credit metrics and thin equity base, given its role as the group's core platform for offshore funding and overseas investments. However, the fact that the company's operation and financial management are directly controlled and managed by DWCM could partly mitigate these challenges.

Upward pressure on Wanda HK's CFR could emerge if: (1) DWCM's CFR is upgraded; and (2) Wanda HK maintains its strategic and economic importance to DWCM.

On the other hand, a downgrade of DWCM's CFR will result in a downgrade of Wanda HK's CFR and the ratings on Wanda HK's guaranteed bonds.

Furthermore, Wanda HK's ratings could come under downgrade pressure if its standalone credit profile deteriorates or there is evidence of a reduction in: (1) the level of ownership held by DWCM, or (2) the strategic and economic importance of the company to DWCM.

The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Dalian Wanda Commercial Management Group Co., Ltd. (DWCM) develops, operates and sells integrated properties in China, including shopping malls, offices, residential properties and hotels.

Wanda Commercial Properties (HK) Co. Limited was incorporated on 6 February 2013 as the primary offshore funding and investment platform for DWCM. The company is also a wholly owned subsidiary of DWCM.

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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