Moody’s: SIPG’s Shanghai Xingwaitan Acquisition Is Credit Negative

Ratings agency Moody’s informed that Shanghai International Port’s (SIPG) acquisition of a 50% stake in Shanghai Xingwaitan Development and Construction is credit negative.

The transaction will not immediately affect SIPG’s A1 issuer rating or the A2 backed senior unsecured bond ratings of Shanghai Port Group (BVI) Holding, Moody;s said, adding that the ratings outlook remains stable.

Osbert Tang, a Moody’s Vice President and Senior Analyst, explains that the acquisition is credit negative “because the move will result in SIPG’s financial profile weakening slightly.”

“The project will not provide immediate material cash flow to SIPG… Yet, it will raise slightly the company’s financial leverage,” Tang added.

In late December 2017, SIPG unveiled that it won the bid for a 50% equity interest in Shanghai Xingwaitan, owned by China Jinmao Holdings Group Limited, at a consideration of CNY 6 billion (USD 925.6 million).

SIPG currently owns a 50% equity interest in Shanghai Xingwaitan and upon the completion of the acquisition, Shanghai Xingwaitan will be 100% owned by SIPG and consolidated into the latter’s accounts.

SIPG intends to finance the acquisition consideration through a combination of cash and debt, and the company plans to repay the debt this year, partly with the proceeds from the planned disposal of two other property projects announced in November 2017.

Considering the acquisition cost and the consolidation impact of Shanghai Xingwaitan’s standalone financials, Moody’s estimates that SIPG’s adjusted funds from operations (FFO)/debt and FFO interest coverage will slightly deteriorate to around 20%-21% and 6.0-6.5x, respectively, over the next 12-18 months.

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