GLP Pte was stripped of its last investment-grade rating by S&P Global Ratings due to deteriorating liquidity and asset-monetisation delays at one of Asia’s biggest logistics firms.
S&P cut GLP and unit GLP China Holdings Ltd. by two notches to BB, the ratings firm said in a statement on Nov 2. Its grades were then withdrawn at the group’s request, according to S&P. Fitch Ratings dropped GLP to junk territory last month.
Delays in the two firms raising cash from assets and from unwinding related-party transactions has led to higher-than-expected earnings volatility and strained balance sheets, S&P said. “GLP is unlikely to meet its target of completing the monetisation of a substantial portion of logistics assets in China” by year’s end, it added.
GLP said it sought S&P’s ratings withdrawal following “the irreconcilable mismatch between S&P’s credit rating methodology and GLP’s revenue and business model.” Recurring gains from the company’s capital recycling isn’t recognized under S&P’s methodology, according to GLP, resulting “in an incomplete assessment of GLP’s revenue profile and credit strength.”
The company, a former investor darling which has a majority of its logistics assets in China, has been working to cut debt amid concern about spillover from the country’s property-sector crisis and economic slowdown. It and GLP China are among the worst performers in a Bloomberg index of Asia investment-grade dollar bond issuers this year, both posting losses of at least 21% through Nov 2.
GLP said in September, when releasing first-half results, that due diligence for a portfolio of Chinese assets it plans to sell has been completed. The company then disclosed in October that it expected monetisations to top US$10 billion “in the coming months.” Bloomberg News reported in August that GLP had made about US$7 billion worth of assets in China available for state-backed China Logistics Group Ltd. to choose from.
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S&P said on Nov 2 that there’s “execution risk from GLP’s ongoing asset monetisation and the uncertain timing of the recognition of net proceeds. The timing could derail GLP’s plan to deleverage, address its debt maturities and improve its capital structure over the next 12 months.”
The firms’ notes fell as much as 2 US cents Friday morning, according to prices compiled by Bloomberg, on pace for the largest declines in two weeks. GLP China’s two dollar bonds maturing in February, with a combined US$619 million of principal, are indicated at 85 US cents and 94 US cents. But the GLP group’s other notes are no higher than 59 US cents, below the 80 US cent level that investors globally generally consider a threshold for distress.
