Moody's Investors Service has re-assigned mainland conglomerate Citic Pacific a Ba1 corporate rating and withdrawn a Baa3 issuer rating, effectively downgrading it to a junk investment.
Criticising the firm for drifting towards more volatile sectors and divesting a number of quality assets, the agency said yesterday the firm's risk profile had worsened and its financial health weakened.
Moody's also placed the company one rank lower to five on a six-level scale of baseline credit assessment, with six representing the biggest credit risk.
'Investments in property development and steel in China, expected to be the major income contributors going forward, are inherently more cyclical and have high exposure to regulatory uncertainties,' said Moody's vice-president Elizabeth Allen. 'These investments have clearly increased the firm's overall business risk profile, although Moody's takes some comfort in the group's connections and experience there.'
Citic, an indirect investment unit of the State Council, now faces higher borrowing costs as a result of its poorer debt rating.
Ms Allen said the firm had raised about $12 billion from disposing of some assets such as its entire 50 per cent stake in Festival Walk, a prime shopping centre in Kowloon Tong, for $6.2 billion in January. The proceeds were used to reinvest in a 49 per cent stake in a Shanghai Shipyard Land Development project, valued at about $21.1 billion over three phases.
'While Citic's recent asset divestments of almost $12 billion have helped to improve the group's credit metrics, they have, on the other hand, resulted in a lowering of recurring stable income from quality assets,' Ms Allen said.
She said Moody's expected the firm would raise a substantial amount of debt for its property development and iron ore projects at joint-venture levels.