![Analysis: Score Motion: Moody’s assigns Baa2 ranking to Lenovo’s proposed USD notes Analysis: Score Motion: Moody’s assigns Baa2 ranking to Lenovo’s proposed USD notes](https://bestinvestmentsnow.com/wp-content/uploads/http://www.moodys.com/_layouts2/Mdc/Images/researchdoc_logo.gif)
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Hong Kong, July 18, 2022 — Moody’s Buyers Service has assigned a Baa2 senior unsecured ranking to the proposed bonds to be issued by Lenovo Group Restricted (Baa2 secure).
The outlook is secure.
Lenovo will use the proceeds from the proposed issuance to refinance its current debt and for working capital functions, and within the case of the inexperienced bond tranche to finance or refinance eligible initiatives in accordance with Lenovo’s inexperienced financing framework.
RATINGS RATIONALE
“Lenovo’s proposed bond issuance can have a restricted impression on the corporate’s credit score profile as a result of it won’t have a cloth impression on its debt leverage and the corporate will use part of the proceeds to refinance its current debt,” says Gerwin Ho, a Moody’s Vice President and Senior Credit score Officer.
“The issuance will additional enhance Lenovo’s debt maturity profile and improve its monetary flexibility,” provides Ho.
Lenovo’s Baa2 issuer ranking displays the corporate’s lengthy working historical past and monitor file of natural and inorganic enterprise development; main place as a private pc (PC) supplier; and various geographic publicity by way of income technology and operations.
However, the corporate’s ranking is constrained by its low profitability attributable to competitors and investments associated to its in-house manufacturing functionality.
Moody’s expects Lenovo’s income over the following 12-18 months to be broadly secure in contrast with the USD72 billion it achieved within the fiscal 12 months ending 31 March 2022 (FY2022). This income projection displays development in its smartphone, server and options and providers companies, which is able to partly offset a slight decline in its PC enterprise attributable to cargo declines within the general PC market.
Moody’s expects international PC unit gross sales will decline by mid-to-high single digit percentages over the following 12 to 18 months after file development in 2020 and 2021. The PC phase has benefited over the past 18 months from sturdy demand amid provide shortages. Regardless of these headwinds, Moody’s expects income and profitability for the PC trade to be above the pre-pandemic ranges over the following 12 to 18 months.
Moody’s forecasts Lenovo’s adjusted EBITDA margin shall be regular at about 5.8%-6.0% over the following 12-18 months, in contrast with 5.8% in FY2022. This EBITDA margin projection displays elevated contribution from Lenovo’s increased margin answer and providers enterprise, in addition to price management that may mitigate higher competitors in a declining PC market.
Moody’s expects Lenovo’s leverage, as measured by adjusted debt/EBITDA, to rise barely to about 1.5x over the following 12-18 months from our earlier expectation of 1.3x, reflecting a better stage of debt to fund working capital and investments. Moody’s calculation of adjusted debt incorporates payables together with deferred and contingent concerns and put possibility liabilities.
Lenovo’s liquidity is great. Moody’s expects that the corporate’s money steadiness, together with financial institution deposits, of USD4.Zero billion as of 31 March 2022 and projected working money move over the following 12 months shall be adequate to cowl its short-term debt of USD788 million, capital spending, the PCCW Lenovo Know-how Options and PCCW Community Companies acquisition and dividend funds over the identical interval.
Lenovo’s issuer ranking will not be affected by subordination to claims on the working firm stage, as the corporate’s extremely diversified enterprise profile together with its geographically various manufacturing services around the globe mitigates structural subordination danger.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The secure outlook on the ranking displays Moody’s expectation that Lenovo will develop its income scale and scope whereas sustaining its profitability, main place within the PC market and prudent method to capital spending and investments.
Improve stress might emerge if Lenovo maintains its PC market share and grows its income and profitability; maintains its sturdy liquidity and generates solidly constructive free money move; and strengthens its credit score profile, with adjusted debt/EBITDA under 1.0x on a sustained foundation.
Moody’s might downgrade Lenovo’s ranking if the corporate’s place within the PC market weakens whereas its profitability considerably declines; the corporate adopts an aggressive debt-funded funding technique that worsens its credit score metrics, with its adjusted debt/EBITDA above 2.0x-2.2x; or its liquidity weakens, all on a sustained foundation.
The principal methodology utilized in these scores was Diversified Know-how printed in February 2022 and accessible at https://scores.moodys.com/api/rmc-documents/379525. Alternatively, please see the Score Methodologies web page on https://scores.moodys.com for a replica of this technique.
Lenovo Group Restricted designs, manufactures and sells private computer systems, good gadgets, smartphones and servers. The corporate generated income of USD72 billion within the fiscal 12 months ended 31 March 2022, via working in additional than 180 markets globally with a workforce of about 75,000 staff. It was listed on the Inventory Change of Hong Kong in 1994.
REGULATORY DISCLOSURES
For additional specification of Moody’s key ranking assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure kind. Moody’s Score Symbols and Definitions will be discovered on https://scores.moodys.com/rating-definitions.
For scores issued on a program, sequence, class/class of debt or safety this announcement supplies sure regulatory disclosures in relation to every ranking of a subsequently issued bond or notice of the identical sequence, class/class of debt, safety or pursuant to a program for which the scores are derived solely from current scores in accordance with Moody’s ranking practices. For scores issued on a assist supplier, this announcement supplies sure regulatory disclosures in relation to the credit standing motion on the assist supplier and in relation to every specific credit standing motion for securities that derive their credit score scores from the assist supplier’s credit standing. For provisional scores, this announcement supplies sure regulatory disclosures in relation to the provisional ranking assigned, and in relation to a definitive ranking which may be assigned subsequent to the ultimate issuance of the debt, in every case the place the transaction construction and phrases haven’t modified previous to the task of the definitive ranking in a fashion that will have affected the ranking. For additional info please see the issuer/deal web page for the respective issuer on https://scores.moodys.com.
For any affected securities or rated entities receiving direct credit score assist from the first entity(ies) of this credit standing motion, and whose scores could change on account of this credit standing motion, the related regulatory disclosures shall be these of the guarantor entity. Exceptions to this method exist for the next disclosures, if relevant to jurisdiction: Ancillary Companies, Disclosure to rated entity, Disclosure from rated entity.
The scores have been disclosed to the rated entity or its designated agent(s) and issued with no modification ensuing from that disclosure.
These scores are solicited. Please confer with Moody’s Coverage for Designating and Assigning Unsolicited Credit score Rankings accessible on its web site https://scores.moodys.com.
Moody’s considers a rated entity or its agent(s) to be taking part when it maintains an general relationship with Moody’s. Except famous within the Regulatory Disclosures as a Non-Collaborating Entity, the rated entity is taking part and the rated entity or its agent(s) usually supplies Moody’s with info for the needs of its scores course of. Please confer with https://scores.moodys.com for the Regulatory Disclosures for every credit standing motion, proven on the issuer/deal web page, and for Moody’s Coverage for Designating Non-Collaborating Rated Entities, proven on https://scores.moodys.com.
Regulatory disclosures contained on this press launch apply to the credit standing and, if relevant, the associated ranking outlook or ranking evaluation.
Moody’s normal ideas for assessing environmental, social and governance (ESG) dangers in our credit score evaluation will be discovered at https://scores.moodys.com/paperwork/PBC_1288235.
The International Scale Credit score Score on this Credit score Score Announcement was issued by certainly one of Moody’s associates outdoors the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Predominant 60322, Germany, in accordance with Artwork.four paragraph three of the Regulation (EC) No 1060/2009 on Credit score Score Businesses. Additional info on the EU endorsement standing and on the Moody’s workplace that issued the credit standing is accessible on https://scores.moodys.com.
The International Scale Credit score Score on this Credit score Score Announcement was issued by certainly one of Moody’s associates outdoors the UK and is endorsed by Moody’s Buyers Service Restricted, One Canada Sq., Canary Wharf, London E14 5FA below the legislation relevant to credit standing businesses within the UK. Additional info on the UK endorsement standing and on the Moody’s workplace that issued the credit standing is accessible on https://scores.moodys.com.
Please see https://scores.moodys.com for any updates on adjustments to the lead ranking analyst and to the Moody’s authorized entity that has issued the ranking.
Please see the issuer/deal web page on https://scores.moodys.com for extra regulatory disclosures for every credit standing.
The primary title under is the lead ranking analyst for this Credit score Score and the final title under is the individual primarily chargeable for approving this Credit score Score.
Gerwin Ho
VP – Senior Credit score Officer
Company Finance Group
Moody’s Buyers Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong,
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Consumer Service: 852 3551 3077
Clement Cheuk Yiu Wong
Affiliate Managing Director
Company Finance Group
JOURNALISTS: 852 3758 1350
Consumer Service: 852 3551 3077
Releasing Workplace:
Moody’s Buyers Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong,
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Consumer Service: 852 3551 3077
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