Fosun hits back over ratings review after purchase of Portuguese insurers

Moody's and S& P's move spurs investment company to defend purchase of Portuguese insurance firms, saying it has enough money

PUBLISHED : Tuesday, 14 January, 2014, 2:23pm
UPDATED : Wednesday, 15 January, 2014, 8:30am

Fosun International chief executive Liang Xinjun has hit back at two international credit rating agencies that are reviewing their ratings of the company following the acquisition of three Portuguese insurers, saying its financial situation is comfortable.

The Hong Kong-listed investment company announced last week it had acquired 80 per cent stakes in three wholly owned subsidiaries of Caixa Seguros e Saúde, the insurance arm of Portuguese state-owned bank Caixa Geral de Depósitos, for €1 billion (HK$10.6 billion).

Liang said yesterday Fosun had prepared adequate capital for the purchases and there was no need to worry.

"I have not yet read the details of the reviews," he said. "As rating agencies, they focus on safety.

"Rating agencies do not prefer investment. What they prefer is leaving money on the books and not touching it. That is the safest way. But investors in our bonds and shares want us to develop."

The transaction exceeds Fosun’s cash resources and internally generated cash

Liang's comment came a day after Moody's Investors Service placed Shanghai-based Fosun's Ba3 corporate family and B1 senior unsecured ratings under review for downgrades.

Standard & Poor's Ratings Services placed Fosun's BB-plus long-term corporate credit rating under review, with negative implications.

Fosun had yet to finalise funding arrangements for the acquisitions, the two agencies said.

"The consideration for the transaction exceeds Fosun's cash resources and internally generated cash," Moody's vice-president and senior analyst Lina Choi said in a report released on Monday. "We therefore expect that the company will need external funding, dispose some of its investments, or both.

"Such possibilities, if they eventuate, could weaken its financial profile and liquidity position."

Fosun had 21.65 billion yuan (HK$27.7 billion) in cash at the end of June last year. In addition, it had 8.5 billion yuan in investments in listed equities at the holding company level, which provided some financial flexibility in the absence of financial distress, Standard & Poor's said.

Liang said the insurance firms could provide positive cash flow, which would ease the financial burden of the acquisitions.

Fosun's share price rose 4.97 per cent to HK$7.61 on Friday after the acquisitions were announced. It gained 0.39 per cent on Monday and added 1.05 per cent to HK$7.72 yesterday.

In a statement to the stock exchange after the close of trading yesterday, Fosun said it expected its consolidated profit for last year to "increase remarkably" due in part to the rapid development and sound performance of its insurance business.

Liang said that apart from looking to expand in the insurance industry, the company was also taking a proactive approach in looking for investment opportunities in overseas markets.