Fitch: Golden Eagle Diversifies Revenue Base; Leverage Still High

Golden Eagle Retail

31/08/2016 06:44

(The following statement was released by the rating agency)

HONG KONG, August 31 (Fitch) Golden Eagle Retail Group Limited's (Golden Eagle; 
BB-/Negative) efforts to diversify its revenues are starting to bear fruit, but 
the company's ratings remain constrained by its leverage, says Fitch Ratings.

Golden Eagle has in the past three years started to expand its service offerings 
beyond the traditional department store model. In 1H16, revenue increased by 6% 
despite a 5% decline in gross sales proceeds, as other revenue sources, such as 
rental income, management fees and hotel operations, helped to offset the 
decline in commission income from concessionaire sales.

Golden Eagle's new initiatives and a high proportion of stores owned have helped 
the company to outperform some of its peers and keep EBITDA relatively stable in 
the past three years in a difficult retail environment. However, FFO has 
declined as a result of higher interest expenses. In addition, the company has 
only recently obtained permits to re-start property sales for the Riverside 
Project, which came with the acquisition of Global Era Group. This means that 
cash proceeds from property sales for 2016 may be lower than Fitch's 
expectations. 

Golden Eagle's ratings remained constrained by its leverage. Net leverage 
adjusted for lease, payables and customer deposits rose sharply to 5.7x at the 
end of 2015 from 3.3x at end-2014, following the acquisition of Global Era 
Group. Fitch expects leverage to remain elevated in the next two years, given 
weaker cash generation and ongoing capex requirements.  

Sustained negative FCF, further declines in operating revenue and gross sales 
proceeds, payables-adjusted net leverage sustained above 6.0x, and a failure to 
generate planned cash flows from property sales may result in negative rating 
action. The Outlook will be revised to Stable from Negative if the triggers for 
taking negative rating action are not breached in the next 12 months. 

Contact: 

Yee Man Chin

Director

+852 2263 9696

Fitch (Hong Kong) Limited

19/F, Man Yee Building

68 Des Voeux Road, Hong Kong

Chloe He

Associate Director

+86 21 5097 3015

Committee Chairperson

Senior Director

+65 6796 7221

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@fitchratings.com.

Additional information is available on www.fitchratings.com

Related Research 

Golden Eagle Retail Group Limited 

https://www.fitchratings.com/site/re/881716

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