Just when Goodman Group probably thought it had steadied a listing ship with funding deals with Macquarie Group and a big Chinese investor, along comes a credit ratings downgrade from Moody’s Investor Services to add to its loan cost woes.
The industrial property fund is working on settling down its recent refinancing deal with Chinese sovereign wealth fund CIC and Macquarie Bank, and starting work on finding another $1 billion to repay debt due next year.
Moody’s cut Goodman’s long term unsecured rating to Baa3, from Baa2, and warned the rating was on review for a possible further downgrade by "multiple notches".
Goodman stapled securities eased half a cent to 39 cents at the close yesterday.
Moody’s noted that while Goodman was pursuing a number of strategic initiatives to reduce gearing and enhance its liquidity profile, its "ongoing profitability and business position is likely to be weaker relative to what was the case in previous years."
Moody’s said the strategic initiatives "are important if the Goodman’s rating is to stabilise at the current rating level."
"In Moody’s opinion, its funds management business model, which has been weakened by the current operating environment, is unlikely to recover to pre-downturn levels in the near term."
Moody’s also cut the subordinated rating on Goodman’s hybrid securities to Ba1, from Baa3.
"All ratings remain on review for possible downgrade," the agency said.
Last week, Goodman announced it had secured at $485 million secured finance facility and would use the funds to repay its maturing debt obligations for calendar 2009.
The facility expires in February 2010 although it can be extended for a further 15 months.
The facility is supported by China Investment Corp and Macquarie Group.
The action by Moody’s comes after rival agency Standard & Poor’s (S&P) in April lowered its long term rating on Goodman to BBB, from BBB-plus, citing its weakened financial profile.
In May, S&P assigned a negative outlook to the rating. S&P has yet to issue a commentary on Goodman’s latest funding moves.
Goodmans says the impact of the ratings downgrade was to increase the fund’s annual interest expense by about $2 million.
Moody’s senior analyst Clement Chong said the downgrade reflected the ratings agency’s concern about the continued weakness in the outlook for industrial properties in Australia and, to a higher extent, Europe in which some of Goodman’s strategic fund investments are located.
He also mentioned the likely extended period of difficulty for Goodman in restoring profitability and cash flows from its funds management business.
