Credit rating agency Moody’s on Tuesday, October 25, downgraded China’s Fosun International by one level and adjusted the firm’s outlook from “ratings under review” to “negative” as investors were concerned over the firm’s asset sales.
According to Reuters, the downgrade move from Moody’s came as the Chinese conglomerate announced last week that it would sell its majority stake in a Chinese metals firm’s parent for up to 16 billion yuan ($2.2 billion) to pay its debts.
However, Moody’s noted that while the firm’s divestments will provide cash, a decline of 30% in the market value of Fosun’s key units for the last four months has offset its funding efforts.
Earlier, Moody’s on September 30 placed the firm for further downgrade for refinancing risk due to its “fast and significant decline” of the market value of listed assets.
Fosun then notified the rating agency that it would stop providing relevant information to the agency in the future.
Bloomberg reported that the conglomerate said on Monday that it aimed to sell 50 billion to 80 billion yuan ($11 billion) of non-core assets in the next year to optimize its balance sheet and boost investor confidence.
The Chinese conglomerate also reviewed its stakes in financial institutions in Europe to seek possible solutions to raise money to repay its debt.
Forbes reported that Fosun has to pay 650 billion yuan ($90 billion) in total liabilities, up 8% from last year. The newspaper cited its interim report in August, reporting that 40% of the liabilities figure is interest-bearing debt, including $17.2 billion in principal payments due June next year.
Two credit rating agencies, Moody’s and Standard & Poor’s, downgraded the company in August and September for its “elevated refinancing pressure” and “less than adequate” liquidity.
Founded in 1992 by Guo Guangchang and four others, Fosun is one of China’s largest privately owned conglomerates. It has business in 16 countries worldwide.
Guo Guangchang is considered China’s Warren Buffet as he applies the same investment strategy from the legendary American investor by using cash flow from insurance firms to purchase other businesses.
According to Forbes, at its peak, the company had stakes in the English Premier League, Portugal’s largest bank, Millennium BCP, French fashion house Lanvin, and resort Club Med.
However, unlike Warren Buffet, Fosun has been borrowing heavily to fund its acquisition. The company is now facing a debt crisis like many Chinese conglomerates.
Fosun stocks have lost about 50% over the past year, reaching a 10-year low since its listing in 2007. Guo’s wealth is now worth $2.5 billion, down two-thirds from last year’s $6.9 billion.