TC

25/02/2020 17:56

Lai Fung Holdings's privatization weaken group financial

    S&P Global Ratings said today that potential privatization of Lai Fung Holdings Ltd. (01125) could moderately weaken the group's financial profile.
  This is because the transaction if approved will likely add debt at the parent level. As the target company, LF's credit metrics, and hence, its stand-alone credit profile will not be directly affected, in the credit rating agency's view. As such, S&P's 'B+' credit rating and stable outlook on LF remains unchanged.
  S&P thinks Lai Sun Development Co. Ltd.'s (LSD)(00488) proposal to take Hong Kong-listed LF private does not change LF's core subsidiary status within the Lai Sun Garment Ltd. (LSG) Group. S&P considers LF to be an important contributor to the parent's operating and financial performance, as LF operates rental-led businesses integral to the overall group strategy.
  If the privatization is approved, LSD intends to finance the transaction from existing internal cash resources and/or external debt financing. LSG's total debt could rise by HK$3 billion assuming the entire transaction is funded by debt. This compares to its total reported debt of about HK$20 billion as of 31 July 2019.
  The additional debt will increase leverage; however, the current group credit profile of 'b+' already reflects a highly leveraged financial position. The group's high leverage will continue to be the key constraint for the rating on LF.
  The agency believes the group's aim is to streamline the corporate structure of LSD. Upon completion, LSD and Lai Fung will be the property business arms of LSG, while the current immediate shareholder of LF--eSun Group--will become a pure-play cinema, media, and entertainment company. In our view, this will help simplify the group's corporate structure.
  S&P expects LF to continue to expand its rental portfolio, with the biggest contribution over 2020-2021 coming from its Hengqin Novotown Phase I Project. The main parts of this cultural-attraction driven property have been in operation since December 2019, but this business has been temporarily closed since 24 January 2020, due to the COVID-19 outbreak. LF faces increased operating and financial burden for its Hengqin commercial property, due to disruptions related to the COVID-19 outbreak. The financial impact remains uncertain and contingent on how long the situation will last.

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