Fitch: Parkson's Sale of Loss-Making Beijing Store Cuts Leverage

Parkson Retail

22/09/2016 05:11

(The following statement was released by the rating agency)

HONG KONG/SHANGHAI, September 22 (Fitch) Fitch Ratings says China-based 
department-store operator Parkson Retail Group Limited's (B/Negative) proposed 
disposal of a store in Beijing ought to reduce the company's leverage, even as 
its ratings remain constrained by the weak profitability and continued sales 
decline of its core operations.

Parkson announced on 14 September that it expects to generate CNY2.3bn in gross 
proceeds (CNY1.9bn in net proceeds) from the proposed disposal of: i) a 
subsidiary that owns, amongst other things, the building that houses Beijing Sun 
Palace Parkson, a store that has been unprofitable since it started operations 
in 2010, and ii) a shareholders loan owed by the subsidiary it plans to sell. 
Fitch estimates Parkson may swing to a small net cash position after the 
transaction is completed. After adjusting for operating leases, customer 
prepayments and 85% of trade payables, Fitch expects payables adjusted FFO net 
leverage to fall to below 6x by the end of 2016, compared with our previous 
forecast of 6.9x. 

Still, the disposal does not create upward rating pressure, as it does not 
address Parkson's core issue of declining sales and profitability. Parkson had 
reported a 9.7% decline in same-store-sales and a 12% decline in gross sales 
proceeds in 1H16, and reported a small operating loss. 

We may take negative rating action if its FFO fixed-charge coverage were to stay 
less than 1.2x, payables-adjusted FFO net leverage remained above 7x, and its 
same-store-sales and margins were to keep deteriorating. We may take positive 
rating action if Parkson could at least halt the decline in same-store sales or 
stabilise them. 

Contact: 

Yee Man Chin

Director

+852 2263 9696

Fitch (Hong Kong) Limited

19/F Man Yee Building

68 Des Voeux Road

Central

Hong Kong

Chloe He

Associate Director

+86 21 5097 3015

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

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