CAR Inc. -- Moody's: UCAR's completion of CAR stake sale is credit positive for CAR, no immediate ratings impact
Announcement: Moody's: UCAR's completion of CAR stake sale is credit positive for CAR, no immediate ratings impact
Global Credit Research - 17 Dec 2020
Hong Kong, December 17, 2020 -- Moody's Investors Service says that UCAR Inc.'s completion of the sale of its stake in CAR Inc. (Caa1 negative) is credit positive, reducing concerns over CAR's refinancing and governance risks.
On 15 December, CAR announced that UCAR had completed the sale of its stake in CAR to Indigo Glamour Company Limited, resulting in Indigo Glamour holding about 20.9% of the total issued share capital of CAR.
Indigo Glamour is a subsidiary of MBK Partners Fund IV, a private investment fund managed by MBK Partners.
This shareholder change could improve CAR's liquidity, as the company's proposed issuance of USD175 million convertible bond to Mcqueen SS Ltd., disclosed in an announcement dated 3 December, is contingent inter alia on the completion of UCAR's stake sale.
Mcqueen SS, is a subsidiary of MBK Partners Special Situations I, a private investment fund also managed by MBK Partners.
In addition, UCAR had pledged its CAR shares as collateral for some of its borrowing as of 30 June 2019[1], creating the risk of a change of control that would have accelerated CAR's debt repayments and impacted its operations. UCAR's completion of the sale of its stake in CAR removes such risk.
However, these two events have no immediate impact on CAR's ratings due to its weak liquidity profile even after factoring in proceeds from the proposed convertible bond issuance. In addition, the company faces a challenging operating environment in its car rental business.
As of 30 June 2020, CAR's cash balance of RMB927 million -- including restricted cash of RMB9 million -- was not sufficient to cover its short-term debt of RMB5.2 billion, which included a USD300 million bond due February 2021 and RMB750 million of bonds due April 2021.
In an announcement dated 13 November, Indigo Glamour indicates that, subject to pre-conditions, it proposes a voluntary general offer for CAR's shares with the intention of holding more than 50% of CAR's voting rights. If completed, the increased stake could strengthen CAR's funding access and liquidity position as Indigo Glamour is managed by MBK Partners.
The proposed convertible bond issuance and proposed pre-conditional voluntary general offer are subject to a number of conditions and factors, such as regulatory approvals.
CAR's Caa1 rating factors in its weak liquidity profile and the challenging operating environment. These risks largely offset CAR's leading position in China's car rental market, its moderate debt leverage and its financial flexibility in reducing its fleet to generate liquidity.
The negative outlook on the ratings reflects the company's high refinancing risk.
Moody's could change the outlook to stable if there is material improvement in CAR's liquidity, access to funding and business operations.
On the other hand, Moody's could downgrade the ratings if CAR fails to meet its financial obligations.
Moody's will continue to monitor CAR's ability to meet its upcoming debt maturities, the progress of its proposed convertible bond issuance, and Indigo Glamour's proposed pre-conditional voluntary general offer.
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. It was listed on the Hong Kong Stock Exchange in September 2014.
REFERENCES/CITATIONS
[1] Company Interim Report 23-Aug-2019
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
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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