Ranking Motion: Moody’s assigns Baa2 to Haiken Group’s proposed senior unsecured notes; outlook secure
International Credit score Analysis – 25 Jan 2021
Hong Kong, January 25, 2021 — Moody’s Traders Service has assigned a Baa2 senior unsecured ranking to the proposed USD notes to be issued by Hainan State Farms Worldwide (HK) Co., Restricted and assured by Hainan State Farms Funding Holding Group Co., Ltd. (Haiken Group, Baa2 secure).
Haiken Group will use the proceeds from the issuance for basic company functions.
The outlook on the ranking is secure.
The Baa2 senior unsecured ranking for the proposed USD notes displays the irrevocable and unconditional assure from Haiken Group, and the truth that these notes will rank pari passu with all different unsecured and unsubordinated obligations of Haiken Group.
Haiken Group’s Baa2 issuer ranking displays the corporate’s Baseline Credit score Evaluation (BCA) of ba2 and a three-notch uplift primarily based on Moody’s evaluation of a excessive chance of the corporate receiving assist from, and a excessive degree of dependence on the Hainan provincial authorities and in the end the Authorities of China (A1 secure) in instances of stress.
Moody’s assist evaluation considers (1) the Hainan provincial authorities’s 100% possession of Haiken Group; (2) the continued assist that the corporate receives from the provincial authorities and the central authorities; and (3) the significance of the rubber and agriculture sectors to Hainan province when it comes to financial contributions and employment.
The assist evaluation additionally considers the reputational and contagion dangers which will come up if Haiken Group defaults, given its standing as the most important state-owned enterprise (SOE) owned by the Hainan provincial authorities when it comes to income and profitability. As such, Moody’s believes that the central authorities will assist the Hainan provincial authorities’s efforts to forestall Haiken Group from defaulting, in order to keep away from a disruption to China’s home monetary markets.
The excessive degree of dependence evaluation displays the truth that Haiken Group and the central authorities are uncovered to frequent political and financial occasion dangers.
Haiken Group’s ba2 BCA primarily displays (1) the corporate’s market main place as the most important built-in rubber producer in China; (2) the income insurance coverage mechanism in place to hedge towards rubber worth volatility; (3) the recurring and ongoing assist from the central and provincial governments; and (4) Haiken Group’s sturdy liquidity and entry to capital markets.
On the identical time, Haiken Group’s BCA is constrained by (1) the corporate’s focus in a single commodity and excessive price place; (2) its reasonably excessive debt leverage pushed by its tropical agricultural and tourism and property segments; and (3) its excessive publicity to the low-margin rubber buying and selling enterprise.
Haiken Group’s consolidated debt leverage, as measured by debt/EBITDA, was round 5.6x for 2019. Moody’s expects the corporate’s leverage to rise barely to round 5.7x for 2020, and additional worsen to 6x-6.5x in 2021-22 attributable to its giant funding wants of round RMB4 billion-RMB4.5 billion per yr for its tropical high-efficiency agriculture and tourism and property growth companies. That mentioned, such leverage ranges nonetheless assist the corporate’s ba2 BCA.
Haiken Group’s ranking additionally considers its publicity to the next environmental, social and governance dangers.
The corporate faces reasonable environmental dangers related to its rubber plantation and processing, though its standing as a neighborhood SOE intently supervised by authorities our bodies such because the Provincial Agriculture Division and Provincial Forest Division mitigates this threat.
As for social dangers, Haiken Group bears sturdy social accountability as one-tenth of Hainan’s inhabitants depends on the land owned by the corporate. It has participated in a number of company social accountability tasks, together with poverty alleviation campaigns in Hainan province.
With respect to governance, there may be low predictability on the investments that Haiken Group will make, and restricted info transparency on funding technique and monetary coverage on the holding firm degree, though the Hainan provincial authorities’s full possession and shut monitoring of the corporate mitigate these dangers.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The secure outlook incorporates Moody’s expectation that over the subsequent 12-18 months, (1) Haiken Group will preserve its credit score metrics at ranges applicable for its ba2 BCA; (2) the corporate will likely be prudent in buying abroad property and in its investments in non-rubber-related companies; and (3) the Hainan authorities and the central authorities’s means to offer assist will stay intact.
Moody’s might improve the ranking on the proposed notes if Haiken Group’s issuer ranking is upgraded.
Haiken Group’s issuer ranking might be upgraded if its credit score metrics enhance, with none adversarial modifications in authorities assist. Credit score metrics indicative of an improve embody adjusted debt/EBITDA beneath 4.5x and EBITA/curiosity above 4.0x-4.5x on a sustained foundation.
Moody’s might downgrade the ranking on the proposed notes if Haiken Group’s issuer ranking is downgraded.
Haiken Group’s issuer ranking might be downgraded if it pursues aggressive debt-funded acquisitions or expands quickly in different industrial companies resembling property growth, whereby its enterprise and monetary profiles deteriorate. Credit score metrics indicative of a downgrade embody adjusted debt/EBITDA above 7.0x and EBITA/curiosity beneath 2.5x over a chronic interval.
The absence of a income insurance coverage mechanism to hedge towards rubber worth volatility or proof of weakening assist from the Hainan provincial authorities may also set off a downgrade.
The methodologies used on this ranking have been Protein and Agriculture printed in Could 2019 and out there at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113389, and Authorities-Associated Issuers Methodology printed in February 2020 and out there at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Ranking Methodologies web page on www.moodys.com for a duplicate of those methodologies.
Hainan State Farms Funding Holding Group Co., Ltd. (Haiken Group) is the most important agricultural firm in Hainan province. It’s 100%-owned by the Hainan State-owned Property Supervision and Administration Fee as of the top of 2020.
As China’s largest pure rubber producer, Haiken Group performs an vital position in securing the nation’s pure rubber sources. Additionally it is engaged in tropical high-efficiency agriculture such because the manufacturing of tropical fruits and crops, in addition to grass and livestock breeding. The corporate’s different companies embody tourism, actual property growth, industrial logistics and monetary insurance coverage.
In 2019, the corporate reported a income of RMB23.3 billion and an asset dimension of RMB61.4 billion.
The native market analyst for this ranking is Yuting Liu, +86 (106) 319-6530.
For additional specification of Moody’s key ranking assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure kind. Moody’s Ranking Symbols and Definitions may be discovered at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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The International Scale Credit score Ranking on this Credit score Ranking Announcement was issued by one in every of Moody’s associates outdoors the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Important 60322, Germany, in accordance with Artwork.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit score Ranking Companies. Additional info on the EU endorsement standing and on the Moody’s workplace that issued the credit standing is on the market on www.moodys.com.
The International Scale Credit score Ranking on this Credit score Ranking Announcement was issued by one in every of Moody’s associates outdoors the UK and is endorsed by Moody’s Traders Service Restricted, One Canada Sq., Canary Wharf, London E14 5FA below the legislation relevant to credit standing companies within the UK. Additional info on the UK endorsement standing and on the Moody’s workplace that issued the credit standing is on the market on www.moodys.com.
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The primary title beneath is the lead ranking analyst for this Credit score Ranking and the final title beneath is the individual primarily answerable for approving this Credit score Ranking.
Ying Wang Vice President - Senior Analyst Company Finance Group Moody's Traders Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Consumer Service: 852 3551 3077 Gary Lau MD - Company Finance Company Finance Group JOURNALISTS: 852 3758 1350 Consumer Service: 852 3551 3077 Releasing Workplace: Moody's Traders Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Consumer Service: 852 3551 3077
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