S&P gets more negative on UDC’s Chinese buyer

Ratings agency Standard & Poor’s has affirmed its negative view of finance company UDC’s credit risk if its sale to China’s HNA Group goes ahead.

In a statement issued today, S&P said its investment grade rating of BBB on UDC remained on credit watch with negative implications.

UDC’s owner, ANZ Bank, announced in January it would sell UDC to HNA for $660 million, with the deal expected to complete late this year.

Last week ANZ said it was “continuing to work through the processes associated with the agreed sale of UDC, including both the complex regulatory approval and separation process.”

S&P said it would probably lower UDC’s credit rating if the deal goes ahead.

“We expect to lower our long-term rating on UDC to 'BB-' and the short-term rating to 'B', subject to a review of the final terms and conditions associated with the sale, including confirmation of UDC's proposed governance, operating, capital, and funding structure,” it said.

A rating of below BBB is “regarded as having significant speculative characteristics,” S&P says.

A BB rated entity “faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.”

S&P’s view reflects its assessment of the wider HNA Group, whose credit risk broadly defines that of its subsidiaries.

HNA is not a client of S&P, so the agency does not provide an official rating on the China-based group but S&P said it now viewed HNA’s overall creditworthiness as b, down from b+. 

“We base the revision on our view of HNA group's aggressive financial policy and risks over tightening liquidity. HNA group has significant debt maturities over the next several years and its funding costs are meaningfully higher than that of a year ago. We will closely monitor HNA group's access to capital markets and funding costs to determine whether additional actions are necessary.”

S&P said it believed there was a high likelihood the UDC sale would complete.