Fosun's Ratings Affirmed by S&P, Market Bullish on Chinese Private Enterprises
On 30 May, international rating agency S&P Global Ratings issued a report, raising Fosun International’s rating outlook to stable.
This move implies that with continuous efforts to optimize capital and asset base, Fosun's short-term liquidity pressure has been greatly eased and its ratings have been affirmed by international agency S&P Global Ratings. The results of its strategy of “streamlining the organization” are gradually emerging.
Analysts believe that coupled with the recent increase in foreign investment in China and the continuous net purchase of domestic securities, S&P Global Ratings’ move also revealed that the international capital market is bullish on Chinese private enterprises considering the confidence boost in the outlook of China’s economic recovery.
S&P Global Ratings pointed out in the report that benefitting from the diversified asset portfolio and management's commitment and execution to deleverage through asset disposal, Fosun's asset disposals brought a cash inflow of approximately RMB30.0 billion in 2022. At the same time, sound banking relationships enabled sufficient sources of liquidity amid turbulence in the bond market. The significant asset disposals and stable credit support from banks enabled Fosun's successful repayment of all concentrated maturing bonds in the past three quarters. As of the end of March 2023, Fosun successfully brought down holding-company debt by about RMB24.0 billion to RMB93.0 billion. In addition, the share of bank loans in the holding company's debt rose, the proportion of debts due over the next 12 months dropped significantly, and the stability of the debts improved significantly.
Market analysts pointed out that in the face of the challenging global financial backdrop, U.S. interest rate hike cycle, and geopolitical tensions that disrupt the global economy, Fosun firmly positions itself as a "global innovation-driven consumer group" and implements the strategy of "streamlining the organization", focuses on core businesses, and consolidates the ability to win out market cycles, which set a great example for Chinese companies competing in international markets.
On 30 March, Guo Guangchang, Chairman of Fosun International, once said at Fosun International’s 2022 annual results presentation, "2022 was a special year for Fosun. I think it was a 'perfect storm’. To usher in the future, we must first win out the storm.”
In 2022, Fosun stepped up its efforts in the divestment of non-strategic and non-core assets initiated since 2020 to consolidate its liquidity cushion. For the full year of 2022, the amount by contract value based on consideration set out in the divestment agreements exceeded RMB40.0 billion, bringing a cash inflow of nearly RMB30.0 billion at holding company level.
After winning out the “perfect storm”, Fosun’s efforts in “streamlining the organization” have been recognized in the financial market.
In early May this year, Fosun International's offshore multi-currency syndicated loan was officially launched, and it has obtained a loan of more than US$450 million in equivalent so far. The offshore syndicated loan was jointly initiated by seven banks including Bank of China, Bank of East Asia, Commerzbank, Hang Seng Bank, HSBC, Natixis Bank, and Standard Chartered Bank as lead bookrunners, and more than 10 banks have joined the syndicate.
In January this year, Fosun's domestic operating entity, Shanghai Fosun High Technology (Group) Co., Ltd. obtained a syndicated loan of RMB12.0 billion. The syndicate was formed by five major state-owned commercial banks including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications as joint lead banks, and China Minsheng Bank, the Export-Import Bank of China, and Shanghai Pudong Development Bank as participating banks.
In the report issued on 30 May, S&P Global Ratings fully affirmed Fosun’s sound relationships with domestic and foreign banks. Considering the progress of bank financing, S&P Global Ratings affirmed Fosun's long-term issuer credit rating and guaranteed senior unsecured notes rating, and raised the rating outlook from negative to stable.
Domestic and foreign banks have successively provided significant credit support to Fosun, which reflects mainstream financial institutions' recognition of Fosun's debt management actions such as accelerating the sale of non-core assets and cash inflows. The significant financial support from banks will also help Fosun reduce its dependence on public market financing and support subsequent liquidity management and sustainable business development.
Fosun's series of measures to deleverage and increase cash inflow have also accumulated momentum for the recovery of core businesses in the household consumption sector. In the first quarter of this year, Fosun's businesses in consumer and tourism sectors showed a remarkable upward trend. In the first quarter, Yuyuan achieved an operating revenue of RMB15.244 billion, representing a year-on-year growth of 22.61%; the revenue of Yuyuan Jewelry and Fashion reached RMB11.494 billion, representing a year-on-year increase of 28.55%. Coupled with the overall relaxation of travel restrictions worldwide, Fosun Tourism Group's profit attributable to the parent in the first quarter doubled compared with the same period in 2022, Club Med's business volume reached RMB5.004 billion, an increase of about 44.2%; during the May Day holiday this year, the total business volume of Club Med resorts in China exceeded the same period in 2022 by about eight folds, and exceeded the same period in 2019 by about 110%.
In view of Fosun's business recovery this year, a number of securities firm such as Goldman Sachs, Daiwa Capital Markets, Guotai Junan, etc., successively published research reports, assigning Fosun International a "Buy" or "Overweight" rating.
In the report, S&P Global Ratings also looked ahead to the next 12 to 18 months, on the basis that the short-term liquidity pressure has been greatly eased, Fosun’s strategy of "streamlining the organization" will continue to bear fruit, which may be reflected in future rating actions.
"The virtuous cycle of the capital market and credit rating will lay a solid foundation for the smooth implementation of Fosun's subsequent financial and business strategies," an analyst said.
Source: Bloomberg.com
