Fosun International Limited -- Moody's changes Fosun's outlook to stable from negative; affirms Ba3 ratings

Rating Action: Moody's changes Fosun's outlook to stable from negative; affirms Ba3 ratingsGlobal Credit Research - 08 Feb 2021Hong Kong, February 08, 2021 -- Moody's Investors Service has affirmed the Ba3 corporate family rating (CFR) of Fosun International Limited (Fosun) and the Ba3 backed senior unsecured rating on the bonds issued by Fortune Star (BVI) Limited. The bonds are unconditionally and irrevocably guaranteed by Fosun.Moody's has also changed the outlook on the ratings to stable from negative."The change in outlook to stable and ratings affirmation reflect our expectation that Fosun will sustain its current financial profile, supported by the stable operating performance of its key investees and more prudent expansion plan," says Lina Choi, a Moody's Senior Vice President. "We also expect that Fosun will continue to maintain its access to funding and gradually improve its weak liquidity profile at the holding company level over the next 12-18 months."RATINGS RATIONALEFosun's Ba3 corporate family rating reflects its (1) large and diversified investment portfolio, (2) proven investment track record, and (3) holdings of substantial amount of marketable securities.However, the rating is constrained by Fosun's (1) high and increasing leverage at the consolidated level due to its debt-funded investment strategy, (2) reliance on short-term funding for long-term investments, (3) weak interest coverage at the holding company level, and (4) credit contagion risk from some weak investees, such as Fosun Tourism Group and Shanghai Forte Land Company Limited.Moody's expects that COVID-19 will have limited impact on Fosun's credit profile because most of Fosun's businesses and investments are in China, except for its tourism and insurance businesses. Although its tourism business will continue to be affected by the ongoing COVID-19 crisis in overseas markets, the business only accounts for a small percentage of Fosun's portfolio and consolidated revenue. Moody's also expects the credit quality of Fosun's insurance businesses, which are mostly outside of China, to remain resilient amid the epidemic.As a result, Moody's expects Fosun's key credit metrics will remain stable in 2021, with its market value-based debt leverage (MVL) ratio staying at around 35% as the company maintains a prudent investment policy, whereby the majority of its investments are funded by proceeds from divestures and by new debt to a lesser degree. In addition, Fosun's weak adjusted (FFO+interest)/interest coverage ratio at the holding company level will remain below 1x over the next 12-18 months.On the other hand, Fosun's adjusted consolidated debt/capitalization is likely to have increased moderately to around 56%-57% at end of 2020 from around 53.6% at the end of 2019. The increase can mainly be attributed to growing debt at Fosun's major subsidiaries as they sought to preserve cash during challenging market environment in 2020, as well as the big investment needs of some key subsidiaries. Although the higher leverage at these subsidiaries indicate a weakening credit quality, Moody's does not expect a material increase of credit contagion risk from this rise and Fosun's adjusted consolidated debt/capitalization will stay at around 56% over the next 12- 18 months, as the company and its key subsidiaries are not likely pursue aggressive debt-funded expansion during this period.Fosun's liquidity profile remains weak as it relies heavily on short-term debt to fund its long-term investments, and its cash on hand is insufficient to cover its short-term debt maturing over the next 12 months. Nevertheless, Fosun has been able to manage its debt refinancing during 2020, evidenced by its continuous access to the onshore and offshore bond and loan markets with reasonable financing costs. Moody's also expects Fosun's management will take measures to improve the company's liquidity profile, such as through lengthening its debt maturity profile and relying less on short-term debts to fund its long-term investments.In terms of environmental, social and governance (ESG) factors, Moody's has considered governance risk stemming from the concentrated ownership of Fosun in its controlling shareholder and chairman, Mr. Guo Guangchang, who held a 61.19% stake in the company as of 31 December 2020. Moreover, the company has a complex and evolving investment portfolio, and there is limited transparency around its investments in non-listed companies.These risks are partially mitigated by the company's listing on the Hong Kong Stock Exchange, and as of 8 Feb 2021, Fosun has 14-member board comprising of three non-executive directors and five independent non-executive directors. Furthermore, the company has provided regular training to its directors, and has audit, remuneration and nomination committees, which are all composed of independent non-executive directors, to support the functioning of the board.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook incorporates Moody's expectation that Fosun will prudently manage its expansion and maintain its access to domestic and offshore credit markets.Moody's could upgrade Fosun's ratings if (1) the credit quality of Fosun's investment portfolio and key investees improves, (2) Fosun's financial metrics improve, such as its adjusted consolidated debt/capitalization ratio remains below 50% and adjusted (FFO+interest)/Interest coverage ratio at holding company level stays above 1x on a sustained basis, and (3) its liquidity profile materially strengthens, including a longer debt maturity profile and much reduced reliance on short-term debt.Moody's could downgrade Fosun's ratings if (1) the quality of the company's investment portfolio deteriorates or contagion risk from its investees rises, (2) its adjusted consolidated adjusted debt/capitalization stays above 56%-58%, (3) a much reduced recurring income at the holding company level results in a further weakening in its adjusted (FFO+interest)/interest, or (4) the company's reliance on short-term funding increases, which results in its short-term debt to total reported debt rising above 50%, all on a prolonged period.The principal methodology used in these ratings was Investment Holding Companies and Conglomerates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125855. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Fosun International Limited (Fosun) is headquartered in Shanghai and was listed on the Hong Kong Stock Exchange in 2007.Fosun has diversified businesses spanning three broad categories: (1) integrated finance (Wealth); (2) tourism, leisure and consumer (Happiness); (3) and pharmaceuticals, medical services and health products (Health).The estimated market value of Fosun's investment portfolio totaled around RMB273 billion at the end of 2020. The consolidated group's revenue totaled RMB138 billion in LTM June 2020.The local market analyst for these ratings is Kai Hu, +86 (212) 057-4012.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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