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Rating Action:

Moody's upgrades Golden Eagle Retail's CFR to Ba3, outlook positive

 The document has been translated in other languages

16 Apr 2018

Hong Kong, April 16, 2018 -- Moody's Investors Service has upgraded Golden Eagle Retail Group Ltd's corporate family rating (CFR) to Ba3 from B1.

Moody's has also upgraded Golden Eagle's senior unsecured debt ratings to B1 from B2.

The outlook on the ratings is positive.

RATINGS RATIONALE

"The upgrade of Golden Eagle's ratings and positive ratings outlook reflect our expectation that the company will continue to improve its credit profile because of a stabilized retail environment, supported by its continued revenue growth, stable profitability and deleveraging," says Danny Chan, a Moody's Analyst.

"The change in ratings and outlook also consider the significantly reduced refinancing risk and improvement in the company's debt maturity profile, following the successful refinancing of the RMB4.9 billion offshore syndicated loan due April 2018," adds Chan, who is also Moody's Lead Analyst for Golden Eagle.

Moody's expects that Golden Eagle's gross sales proceeds (GSP) will grow by about 10% over the next 12-18 months, supported by an increased gross floor area (GFA), growing contribution from property sales and the stable operating conditions in the retail industry in China. Such solid growth will continue to lift the company's retail scale and profits.

Golden Eagle's total GFA grew to 2.5 million square meters at the end of 2017 — after the opening of four new lifestyle centers during the year — representing a 41% increase in total GFA when compared with 2015. Golden Eagle has also continued investing to cultivate new revenue sources. And, it has enhanced the customer experience and user stickiness of its platform.

The increased operating floor area and new business initiatives will help the company to sustain a moderate revenue and EBITDA growth of about 20% and 10% respectively over the next 12 months. In particular, Golden Eagle should generate EBITDA of more than RMB2.5 billion per annum over the next 12-18 months, of which, about RMB2.1 billion will be attributable to its core retail activities.

Moody's also expects that Golden Eagle will continue to dispose of its property inventories, and will likely generate more than RMB800-1000 million in property development-related revenues per annum over the next two years. The growing contribution of property income over the next 2-3 years will help the company to weather any potential headwind in the retail business.

Golden Eagle has been generating about RMB750 million of property revenue over the last two years. At the end of 2017, Golden Eagle had completed property-held-for-sales of RMB1.3 billion.

Moody's points out that typically, the launch of a new store would dampen profit margins for the first few quarters, because it takes time to optimize the operation and generate yield levels comparable to matured stores.

Nevertheless, Moody's expects that the company's increased level of property sales over the next 2 years will help offset the lower profitability of its newly opened stores. As a result, its adjusted EBITDA/GSP will remain stable at about 16%-17% over the same period, similar to 17.1% in 2017.

Golden Eagle has also demonstrated a track record of deleveraging as a result of steady EBITDA growth, despite the industry volatility. Ongoing business expansion is supported by EBITDA growth, with debt levels remaining flat.

Golden Eagle' debt leverage — in terms of adjusted debt/EBITDA — should improve to about 3.5x over the next 24 months from 4.7x in 2015; retained cash flow (RCF) to net debt should remain at above 20% over the corresponding period. This level of leverage is strong for its Ba3 rating. Such resilience provides a buffer against the cyclical nature of its retail business.

On 12 April 2018, Golden Eagle announced that its wholly-owned subsidiary, Golden Eagle International Trading Limited, had entered into a new syndicated loan agreement on 12 April 2018. The new facility, together with the group's internal resources, will be used to refinance the entire dual-currency three-year term loan facility in the outstanding principal amounts of USD603 million and HKD1.015 billion, which will be repaid in full on 16 April 2018.

Upon the refinancing, Golden Eagle's liquid resources far exceeded its planned capital investment, while the outstanding borrowings were all long term in nature. The company reported operating cash flow of around RMB3.1 billion in 2017 and cash on hand of RMB6.5 billion, including fixed deposits of RMB0.7 billion.

In addition, Golden Eagle held a portfolio of retail assets totaling RMB2.8 billion in book value as of the end of 2017. These resources can serve as back-up liquidity.

Golden Eagle's Ba3 CFR continues to be supported by its strong market position in the affluent Jiangsu Province, the benefits of its concessionaire model, and its self-owned properties.

Golden Eagle's ratings also reflect its small scale, high level of geographic concentration, the intense competition that it faces in the retail industry, and the property development risk that it faces.

The positive ratings outlook reflects Moody's expectations that over the next 12-18 months, Golden Eagle's improved credit profile will be sustained on the back of revenue growth and improved earnings; and the pursuit of a prudent financial policy and management, as its business expands.

The ratings could be upgraded if the company: (1) continues to improve its revenue and earnings; (2) maintains a disciplined acquisition and shareholder return policy; and (3) improves its debt leverage, such that adjusted debt/EBITDA falls below 3.5x-4.0x and adjusted RCF/net debt remains solidly above 20%, all on a sustained basis

The ratings outlook could return to stable if: (1) Golden Eagle fails to execute its property sales as scheduled; (2) its credit metrics weaken such that adjusted debt/EBITDA is above 4.0x-4.5x or its adjusted RCF/net debt falls below 10%-15%; (3) the company's profitability or cash flow and/or its liquidity position deteriorate; or (3) it aggressively grows its property development business or pursues material acquisitions through debt.

The principal methodology used in these ratings was Retail Industry published in October 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Golden Eagle Retail Group Ltd is one of the largest department store operators in China. Based in Nanjing, the company is strategically positioned in second- and third-tier Chinese cities, catering to mid- to high-end customers.

At 31 December 2017, Golden Eagle operated 32 stores, including 15 lifestyle centers, in the Jiangsu, Anhui, Shaanxi, Yunnan and Shanghai regions.

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.

Danny Chan
Analyst
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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