Hong Kong, January 29, 2019 -- Moody's Investors Service has upgraded the corporate family rating (CFR)
of Yingde Gases Group Company Limited (Yingde Gases) to Ba3 from B1.
At the same time, Moody's has upgraded the senior unsecured rating
on the bonds issued by Yingde Gases Investment Limited and guaranteed
by Yingde Gases to B1 from B2.
The outlook on the ratings is stable.
RATINGS RATIONALE
"The ratings upgrade reflects our expectation that Yingde Gases'
credit profile will remain strong for its rating level, supported
by the company's continued revenue growth, stable profitability
and cash flow generation as a result of continued prudent financial management,"
says Gerwin Ho, a Moody's Vice President and Senior Credit Officer.
Moody's expects Yingde Gases' revenue to grow about 11% over the
next 12-18 months, supported by capacity growth, expansion
in its merchant gas business and the stable operating conditions of the
company's customers in the steel industry.
Moody's also expects that the company's adjusted EBITDA margin will remain
stable at about 31.5%-32.0% over the
same period, which is supported by operating leverage, as
the company's revenue grows.
As a result, Yingde Gases' debt leverage — in terms of adjusted
debt/EBITDA — should improve to about 2.2x over the next
12-18 months from 2.4x in the 12 months to 30 June 2018.
This level of leverage provides a buffer for the company's working capital
needs and against the cyclical nature of its customers' industries.
"The ratings upgrade also reflects the improvement in Yingde Gases' working
capital, amid its growing scale, due to stronger receivables
management," adds Ho.
Moody's estimates that Yingde Gases accounts receivables days improved
to about 40-45 days in 2018, notably lower than the 55 days
and 85 days in 2017 and 2016 respectively, supported by the stable
operating environment of its customers, especially in the steel
industry, and the company's effort in working capital management.
Yingde Gases' liquidity is adequate. Moody's estimates
that the company's cash holding at the end of 2018 and projected
total operating cash flow over the next 12-18 months can cover
its committed capital expenditure and repayment of maturing debt over
the same period.
Yingde Gases' Ba3 CFR reflects the company's: (1) strong position
in China's onsite gas supply market, where it holds competitive
advantages; and (2) good profitability and recurring cash flow,
supported by its long-term contracts with onsite customers.
Such contracts account for the majority of its revenues.
On the other hand, the CFR is constrained by: (1) the company's
small revenue scale when compared with its international peers and high
exposure to the cyclical domestic steel industry; and (2) high customer
concentration.
The stable ratings outlook reflects Moody's expectation that Yingde Gases
will grow its revenue and maintain its profitability and cash flow generation,
and maintain prudent financial management, as characterized by disciplined
capital expenditure and acquisitions and shareholder distribution.
At the same time, Moody's expects that the company will be
able to refinance its short-term debt.
Moody's could upgrade Yingde Gases' ratings if the company
(1) achieves revenue growth, as well as stable profitability and
positive free cash flow generation; (2) improves customer and end
market diversification; (3) maintains prudent financial management,
as characterized by disciplined capital expenditure and acquisitions and
shareholder distribution; and (4) further strengthens its liquidity
profile.
Moody's could downgrade the ratings if Yingde Gases: (1) experiences
revenue decline; or (2) exhibits weakened profitability; or
(3) demonstrates a deterioration in its liquidity or credit profile,
such that its adjusted debt/EBITDA exceeds 3.0-3.5x
on a sustained basis, or if the company is unable to refinance its
short-term debt.
The principal methodology used in these ratings was Chemical Industry
published in January 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Yingde Gases Group Company Limited is one of the largest players in the
independent onsite industrial gas market in China, with RMB5.7
billion in revenue for the six months between January and June 2018.
At 30 June 2018, it had a total of 75 gas production facilities
in operation and another 16 under development. PAGAC II-2
Limited, an investment partnership managed by private equity firm,
PAG Asia Capital GP II Limited, held a 100% stake in Yingde
Gases at 30 June 2018.
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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entities are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
ratings process. Please refer to www.moodys.com for
the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
for Designating Non-Participating Rated Entities.
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.
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.)
JOURNALISTS: 852 3758 1350
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
