December 20, 2017 / 8:22 AM / a year ago

Fitch: China Grand Auto's Equity Placement Rating Neutral

(The following statement was released by the rating agency) HONG KONG, December 20 (Fitch) China Grand Automotive Services Co., Ltd (BB-/Stable) may accelerate M&A and leasing business expansion following its December 2017 equity placement, says Fitch Ratings. China Grand Auto's CNY8 billion equity issuance is marginally credit positive, as it will improve the company's liquidity position. That said, Fitch does not expect the equity proceeds to be used for debt reduction, thus FFO adjusted net leverage is unlikely to fall below 3.5x, the level at which we would consider positive rating action. China Grand Auto plans to use more than half of the proceeds to expand its leasing business, Huitong Xincheng, which Fitch deconsolidates in its analysis in accordance with its Corporate Rating Criteria. We also expect the company to take the opportunity for further M&A. China Grand Auto is an acquisitive company and has largely expanded by consolidating smaller dealerships over the previous few years. We have assumed that the company will spend CNY3 billion per year on acquisitions in our rating case (which does not include the equity issuance), but management may accelerate its M&A plans if funding becomes available. China Grand Auto's ratings are supported by its strong business profile as China's leading auto dealership, with good brand and geographical diversification. FFO adjusted net leverage was relatively high at 6x immediately following the Baoxin acquisition, but has fallen below 5x on the back of strong earnings growth and limited capex over the past year. Fitch expects FFO adjusted net leverage, excluding leasing, to remain stable at 4-5x in the next three years. Contact: Yee Man Chin Director +852 2263 9696 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Cathy Chao Associate Director +852 2263 9967 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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