[ET Net News Agency, 17 June 2020] S&P Global Ratings said today that China Jinmao
Holdings Group Ltd.'s (00817) proposed privatization of Jinmao Hotel and Jinmao (China)
Hotel Investments and Management Ltd. (06139) could temporarily drain the group's cash
despite potentially providing more financial flexibility going forward.
China Jinmao intends to fund the privatization using internal cash resources and debt.
The credit rating agency believes the HK$3.19 billion cash consideration will not
significantly weigh on the company's existing debt. Nonetheless, China Jinmao's leverage
remains very high for its rating level (BBB-/Negative/--).
The negative outlook reflects S&P's view that the company's revenue growth and margin
recovery could fall short of the agency's expectation in the next 12 months. This could
lead to a reduced improvement in China Jinmao's leverage, given the company's sustained
growth appetite and unpredictable revenue.
S&P believes privatization is prompted by two major considerations. Firstly, the
COVID-19 outbreak has weighed on Jinmao Hotel's share price, allowing China Jinmao to buy
out its subsidiary at a low valuation. Secondly, the privatization will provide the group
with more financing options using Jinmao Hotel's premium assets.
Jinmao Hotel owns Jin Mao Tower in Shanghai and eight other luxury hotel assets across
China, with a total fair value estimated to be above RMB20 billion. The privatization will
make it easier for China Jinmao to pledge these assets under a wholly-owned subsidiary for
financing purposes. However, it will also lower the equity financing portion of the
group's capital structure and any new securitized debt financing could weigh on China
Jinmao's leverage.
On 12 June 2020, the group announced its proposal to privatize Jinmao Hotel and tender
the outstanding 33.2% public shares. The offer price of HK$4.80 per share represents a
premium of 30.4% over the previous day's closing price but remains below the initial
listing price in 2015. (KL)