Shanghai-headquartered Chinese privately owned conglomerate Fosun International Ltd. has been downgraded by Standard & Poor’s Ratings Services because of the company’s increasing leverage level as a result of its acquisitions, according to a notice issued by S&P.
Fosun’s long-term corporate credit rating is downgraded to BB from BB+ with stable outlook.
"We downgraded Fosun because we believe the company’s already significantly increased leverage is unlikely to improve in the next 12 months," says S&P’s credit analyst Huma Shi.
"Fosun’s mostly debt-funded acquisitions and the continued weak financial performance of its steel segment are largely responsible for the increase in leverage over the past year," he adds. "We expect the company to continue to make significant acquisitions for the next 12 months."
In the past year, Fosun has embarked on a number of large acquisitions, including backing the privatization of Chinese hospital operator Chindex International, Inc., acquiring a 19.18% interest in Frankfurt-based German private bank BHF-BANK, buying a 20.45% stake of Beijing-based Sanyuan Foods Co., Ltd., and investing RMB210.5 million in Malaysian lifestyle cafe chain Secret Recipe.
S&P says it expects Fosun’s consolidated cash flows and leverage to weaken over the next two years, and believes that its financial risk profile has become "highly leveraged," says the notice.
Fosun will benefit from its acquisition of 80% of the wholly owned subsidiaries of Caixa Seguros e Saude (CSS), the insurance arm of state-owned Portugal bank Caixa Geral de Depositos S.A.
That acquisition will provide steady cash flows to Fosun, and provide alternative funding sources to Fosun’s investment strategy.
"In our view, Fosun is still transitioning from an industrial conglomerate to an insurance investment holding company," says Shi. "The insurance contributions, after the CSS acquisition, will be significant but not sufficient to warrant a change in our current approach."