Rating Action: Moody's places CAR Inc.'s ratings on review for upgrade
Global Credit Research - 22 Jul 2020
Hong Kong, July 22, 2020 -- Moody's Investors Service has placed on review for upgrade the Caa1 corporate family rating and senior unsecured rating of CAR Inc.
The outlook on the ratings has changed to ratings under review from negative.
The rating action follows CAR's announcement on 20 July 2020 that:
(1) UCAR Inc. has entered into a sale and purchase agreement with Jiangxi Province Jinggangshan Beiqi Investment Management Co., Ltd. (Jinggangshan BAIC) for the acquisition of UCAR's 443 million CAR shares, or about 20.9% of CAR's total issued share capital, for a total consideration of HKD1.4 billion.
(2) Amber Gem Holdings Limited, a subsidiary of Warburg Pincus & Co., had signed an offer letter with Jinggangshan BAIC for the proposed acquisition of no less than 171 million CAR shares, or about 8.0% of CAR's total issued share capital, by Jinggangshan BAIC for a total consideration of HKD529 million.
The transactions are subject to a number of conditions precedent, including approvals or confirmations from relevant government and regulatory authorities.
If both transactions are completed, Jinggangshan BAIC will hold an approximate 28.9% stake in CAR.
Jinggangshan BAIC is 40%, 30% and 30% owned by BAIC Group Industrial Investment Co., Ltd. (a wholly-owned subsidiary of Beijing Automotive Group Co., Ltd. (BAIC Group, Baa3 stable)), Jiangxi Provincial Investment Group Co., Ltd. and Jiumu Ruiyuan (Beijing) Investment Co., Ltd., respectively.
"The review for upgrade reflects our expectation that the introduction of Jinggangshan BAIC as a key shareholder could improve CAR's funding access and weak liquidity profile," says Gerwin Ho, a Moody's Senior Credit Officer and also Moody's Lead Analyst for CAR.
"Additionally, the change in shareholder could ease CAR's refinancing and reduce governance concerns associated with UCAR's shareholdership," adds Ho.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Although BAIC Group accounted for Jinggangshan BAIC as a long-term equity investment in its 2019 financials, BAIC Group is a key shareholder in Jinggangshan BAIC with a 40% stake. BAIC Group is one of the top five automakers in China by unit sales, and is a state-owned enterprise owned by the Beijing Municipal Government through its parent company Beijing State-owned Capital Operation and Management Center (A1 stable).
Jinggangshan BAIC's shareholding could help improve CAR's access to funding, which is key to CAR's business operations and its ability to refinance its USD300 million notes due February 2021.
From a governance perspective, while independent directors only make up a minority of CAR's board, the company is a listed and regulated entity. The company has a diversified shareholder base that includes major shareholders such as Legend Holdings Corporation. Today's action factors in the potential reduction in governance and refinancing concerns that could result from the change in substantial shareholder from UCAR to Jinggangshan BAIC.
Concerns around UCAR's shareholding arose in April, when Luckin Coffee Inc. issued an announcement[1] regarding an internal investigation into misconduct. At the time of the announcement, Mr. Charles Zhengyao Lu was the chairman of Luckin Coffee's board of directors, the chairman of the board of CAR and chairman of the board of UCAR. Mr. Lu is currently the chairman of the board of UCAR.
UCAR had pledged its CAR shares as collateral for some of its borrowing as of 30 June 2019[2], creating the risk of a change of control that would accelerate CAR's debt repayments and impact its operations.
Moody's review will focus on (1) the progress of the two transactions; (2) the impact of Jinggangshan BAIC's shareholdership on CAR's access to funding and refinancing plan; (3) any changes to the composition of CAR's board of directors, such as Jinggangshan BAIC's participation; and (4) CAR's business plan and financial policy.
The principal methodology used in these ratings was Equipment and Transportation Rental Industry published in April 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1061773. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
CAR Inc., founded in 2007 and headquartered in Beijing, provides car rental services, including car rentals and fleet rentals in China. CAR listed on the Hong Kong Stock Exchange in September 2014.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.
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The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
REFERENCES/CITATIONS
[1] Luckin Coffee press release 02-Apr-2020
[2] Company Interim Report 23-Aug-2019
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
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