Recently, a rating report by Moody's caused Fosun International's risk exposure in the real estate industry to cause public concern.
The capital market has always had a characteristic, that is, any disturbance of international rating agencies can cause great attention. Under the influence of biased negative news, some of Fosun International's bonds recorded declines last week. In view of this, some netizens understood the company's several normal reductions in the capital market as Fosun's tight cash flow, and also used words such as "Fosun's 600 billion yuan debt peak" to earn traffic.
In fact, long before Moody's, in early June this year, Moody's peer S&P gave Fosun a stable rating. Recently, Morgan Stanley reiterated its "Buy" rating on Fosun. On June 23, S&P again published a research report confirming that Fosun has a rich asset size and a diversified portfolio that provides sufficient funds to deal with debt maturing over the next 6 to 12 months.
Why are the reports of the two major international rating agencies "fighting"? What is the truth about the "600 billion debt"? Has Fosun fallen into a debt crisis and what about the basic market?
These are the questions we want to explore today.
1
An over-interpreted Moody's report
To learn about moody's ratings, we have to pull back to June 15. At that time, Moody's put Fosun International's rating outlook on the watch list, an important reason for believing that Fosun's holding subsidiaries Forte and Yuyuan were engaged in real estate. Moody's expects fosun's public bond market financing channels to face challenges due to rising risk aversion of high-yield private enterprises with large exposure to the real estate industry by domestic and foreign investors, which will significantly increase Fosun's refinancing risk.
As a result, some people have mistakenly understood Moody's report as Moody's downgrading of Fosun's rating, believing that Fosun is facing a financial crisis. But in fact, the fact that international rating agencies put a company's rating outlook on the watch list does not directly downgrade the company's rating, and the practice of being on the watch list is more moderate than direct downgrading.
Moreover, as Moody's said, Moody's move is mainly based on general concerns about the current refinancing environment in the domestic real estate industry and the external public bond market, and is not just for Fosun. In addition, with the liberalization of the domestic property market supervision policy according to local conditions, superimposed on a number of recent stable economic policies to stimulate, whether it is the real estate industry or other macro, meso industry, or micro enterprise operation, marginal improvement is a matter of high probability.
As the protagonist of the rating event, Fosun performed calmly. On June 22, Fosun International issued an updated announcement to repurchase in full the full amount of two offshore bonds due within the year that are in the process of being repurchased. The two offshore bonds are FOSUNI 5.5% 2023 USD bonds with redemption rights for investors in August this year, amounting to about US$380 million, and FOSUNI 3.3% 2022 euro bonds due in October this year, amounting to about 384 million euros. The tender offer deadline for the two offshore bonds is July 4, 2022, and the offer repurchase price is 100% of the par value redemption.
If the repurchase is completed, it will mean that Fosun International will not have any foreign bonds due this year. It should be noted that the above announcement is an updated version, two days ago, that is, on June 20, the original announcement only showed that Fosun International wanted to repurchase the two overseas bonds, with a total amount of no more than US$200 million, but after the update, Fosun International increased the repurchase ratio to full redemption.
The analysis believes that Fosun is managing the mature debt in advance and actively optimizing the debt structure, in addition to a positive and positive response to the recent market, it is more important to boost market confidence, and to a certain extent, it also shows that Fosun's capital is relatively generous.
Deep Blue Finance noted that the offer repurchase is in line with Fosun's consistent style of managing mature debts in advance. In the face of positive signals released by Fosun, the company's dollar bond price ended the previous two consecutive weeks of continuous declines and rebounded on the morning of June 22.
From another perspective, Moody's Senior Vice President Cai Hui said: "The downturn in the domestic real estate industry will also increase the risk of credit sprawl and increase the liquidity pressure of Fosun's core real estate subsidiaries. However, fosun's real estate business has a small proportion, and it is unlikely that the so-called "thunderstorm" will be triggered by the broken chain of funds. That is to say, Moody's still affirms Fosun's diversified asset portfolio, the cashing in the investment and withdrawal balance, and Fosun's investment achievements over the years.
2
Looking at Fosun from multiple dimensions of the S&P and Morgan reports
In fact, different rating agencies often have their own set of evaluation criteria. In this case, it is entirely possible for different rating agencies to give research reports with different views on the same company. Then, the most objective and comprehensive approach to the risk profile of the subject matter is to start from the evaluation of different rating agencies and observe in multiple dimensions.
Deep Blue Finance noted that prior to Moody's ratings, on June 1, S&P issued a report maintaining Fosun International's BB (Stable) rating, and fully affirmed Fosun International's ability to control debt and endogenous growth strategy.
In this report, S&P pointed out that Fosun can rely on multi-currency debt and stable banking relationships to effectively manage the company's liquidity.
On June 23, S&P again reported that Fosun had sufficient resources to deal with debt that was about to mature in the next 6 to 12 months. S&P believes that Fosun's offer on June 22, 2022 to repurchase all offshore notes due this year (totaling about US$800 million) reflects Fosun's efforts to alleviate recent market doubts.
Intuitive financial data can help us gain insight into Fosun's ability to withstand risks.
According to Fosun International's 2021 performance report, in terms of capital institutions, by the end of 2021, the total debt-to-total capital ratio fell to 53.8%, and the average debt was in the historical position of 4.6%.
At the financing level, Fosun and its subsidiaries have established cooperative relations with more than 100 Chinese and foreign banks around the world, and signed strategic cooperation agreements with a number of international banks and a number of Chinese banks. Deep Blue Finance learned that Fosun's syndicated loan in 2022 initially aimed at about US$660 million, while the actual approved final loan amount was US$870 million, exceeding the expectation of US$200 million, which fully proved that the company has diversified financing channels and widely recognized financing capabilities in the market.
As of the end of 2021, Fosun had cash, bank balances and time deposits of RMB96.78 billion, as well as a large number of financial assets and bond investments measured at fair value and recorded in profit or loss, both of which were RMB42.5 billion and RMB19.3 billion respectively. The sum of the three figures is enough to cover Fosun's bank borrowings and other borrowings due within a year. In other words, the scale of Fosun's short-term debt will not pose a threat to Fosun's continuing operations.
Based on Fosun's fairly healthy financial performance, S&P believes that Fosun can use collateralized debt, bank borrowings and assets to pay off mature debts, and there is no doubt about the company's ability to effectively manage mature debts, and believes that Fosun's offshore and onshore bank financing has increased this year, and the company's relationship with the banking business is good and there is no possibility of impact.
Just as Moody's and S&P ratings are diverging, on June 22, Morgan Stanley also released a research report to provide a reference for the industry to provide Fosun's financial risk and valuation level.
The report mentions two core points, one is that the market is overreacting to the decline in Fosun International's stock price due to Moody's tightening of Fosun's cash position. Morgan Stanley reaffirmed its "Buy" rating for Fosun International by confirming that fosun international's recent volatility is short-term pressure and expecting the company's share price to rebound within 60 days; The second is to confirm that Fosun has more than $10 billion in high liquid assets around the world, cash is abundant, and even if the bond market is under pressure due to the Fed's balance sheet reduction and interest rate hikes, its financing ability is not limited.
3
The "600 billion debt" truth
"Fosun's 600 billion debt is at the top", which is a "secondary controversy" caused by this Moody's report, and many netizens use this to obtain traffic, but in fact, they have a certain misunderstanding of the 600 billion debt.
First of all, this 600 billion yuan of debt is nothing more than fosun's international consolidated statement figures.
As we all know, Fosun, with its current positioning as a household consumption industry group, has an industrial layout on a global scale, with four major industrial sectors of health, happiness, wealth and intelligent manufacturing, spanning many fields such as medicine, insurance, technology, resources, liquor, retail, tourism and culture. In A-shares and Hong Kong stocks alone, there are as many as 11 listed companies controlled by Fosun International. In addition, Fosun also has a number of listed companies in overseas capital markets.
Therefore, the 600 billion yuan of debt also includes the debts of Fosun's Yuyuan shares, Portuguese insurance, Travel Culture and other subsidiaries, not Fosun International's own debts, and Fosun is not jointly and severally liable.
Secondly, the view that "Fosun's 600 billion debt is at the top" actually exposes its lack of professional financial knowledge. Because financial institutions such as Portugal Insurance and Peak Re insurance have essential differences in debt attributes from non-financial institutions, if the two are confused, it is easy to directly mislead the general reader and even the capital market.
4
Continuously thicken the ability to withstand risks
In fact, not only moody's target of the real estate market, the current entire economic environment and industrial environment are changing under the situation of sudden changes in the global geopolitical situation, oil prices soaring, inflation, and repeated epidemics, so many companies are very confused: how to increase the ability to resist risks in the development of the economic cycle and industrial cycle?
Jeff Bezos, founder and CEO of Amazon, has always had a very persistent view of putting all resources into the same things. Don't ask what will change, but ask what will not change for the next decade.
We will find that some business rules are immutable: whoever can find certainty in uncertain market fluctuations, continue to grasp quality and opportunities, adhere to accurate and forward-looking strategic guidance and thorough strategic execution, who can take advantage of the competition.
Looking back over the past three decades, Fosun understands the above business logic and has gained certainty in identifying the positioning of the household consumer industry group. Even if complex uncertainties strike, Fosun can maintain its growth with its four major sectors of health, happiness, wealth and intelligent manufacturing.
In 2021, Fosun's annual revenue was RMB161.29 billion, an increase of 18% year-on-year, net profit attributable to the mother was RMB10.09 billion, an increase of 26% year-on-year, and total assets reached RMB806.4 billion. Specifically, the revenue of the four major sectors of health, happiness, wealth and intelligent manufacturing increased by 27.1%, 19.4%, 2.8% and 56.3% year-on-year compared with 2020. Among them, the two major sections of health and happiness still occupy Fosun's basic disk steadily, accounting for nearly 70% of revenue.
Based on the foundation of the four major sectors, Fosun's globalization capabilities accumulated over the years can not only maintain the stability and long-term development of global industrial operations in the crisis, but also find opportunities in the future global business recovery. At the heart of Fosun's global capabilities is its international team and ecosystem members, who highly recognize Fosun's values, take root in execution, and have a global strategic mindset.
H&A's acquisition and integration of Bankhaus Lampe, a veteran Private Bank in Germany, into HAL is a testament to Fosun's ability to take root in the country. Through their strong local execution, hal teams and Fosun Germany teams have successfully overcome the inconvenience of travel and the challenges of the epidemic, not only successfully completing the acquisition, but also upgrading Fosun's rich territory in the world.
Fosun has a global strategy in mind, typically in fosun's Fulang Group in the field of fashion luxury. It should be known that Lanvin, the core brand of Fulang Group, was once on the verge of bankruptcy before merging into Fulang, but now it has become the most important engine of revenue growth of the group, relying on the global awareness that Fulang Group has always adhered to. In 2021, LANVIN's single-store sales in the US market showed explosive growth sequentially, while sales growth in China also remained in the triple digits.
In the field of pharmaceuticals, fosun pharma and BioNTech in Germany jointly developed fubitai (mRNA new crown vaccine), as of the end of March, the mRNA new crown vaccine Fubitai has received more than 24 million doses in Hong Kong, Macao and Taiwan. Thanks to the landing of innovative products, in the first quarter of 2022, Fosun Pharma's non-net profit attributable to the mother increased by 21.73% year-on-year, and its revenue increased by 28.87% year-on-year.
In addition, Fosun continues to consolidate its "hard power" throughout the overall situation with scientific and technological innovation.
Guo Guangchang, chairman of Fosun International, once said that in the process of enterprise development, investment can be used to shorten the catch-up time, and operation can improve financial performance, but only science and technology can make enterprises form a comprehensive transcendence in a certain aspect and form a leader in the industry.
Just like Fosun Pharma, the flagship company carrying Fosun's health industry, it has increased investment in promoting scientific research and innovation, and its blockbuster product, Ikeda (Agironsey Injection), was approved for listing in June 2021, becoming the first CAR-T cell therapy product approved for listing in China;
If the health sector has eaten the dividends of the epidemic, then the happiness sector will inevitably be hit hard by the epidemic, but Fosun has offset some market weaknesses with the forward-looking layout of globalization and the unsealing of most countries. In the first quarter of 2022, Fosun Happy's flagship travel and cultural revenue increased by more than 3 times year-on-year to RMB4.2 billion. Another flagship, Yuyuan Shares, although adversely affected by the recurrence of the epidemic in Shanghai, still achieved a revenue increase of 12% year-on-year.
The power of science and technology must, of course, be carved into the bones of "intelligent manufacturing". In 2021, Fosun's leading enterprise Nangang Steel Co., Ltd. (600282. SH's scientific and technological innovation achievements - special weathering steel has been widely used in the "Snow Dragon" (National Bobsleigh Center) of the 2022 Beijing Winter Olympics. According to the data, the project is the most difficult to design, the most difficult to construct and the most complex facility in the 2022 Winter Olympics.
In summary, under the adverse influence of the economic environment, the epidemic and other factors, although Fosun's businesses have inevitably been affected to a certain extent, it has significantly enhanced its ability to resist cyclical fluctuations with its diversified business portfolio and global asset layout. This also hopes that Fosun will continue to show a thick and thin trend in the next few days, and the whole process, some outside gossip will not be enough to become a roadblock to block its progress. An excellent company like Fosun, which has developed through the cycle for a long time, will eventually take time to prove it
This article originated from Deep Blue Finance