Lenovo Group, the leading PC manufacturer has been upgraded by one notch to BBB from BBB- by Fitch Ratings pushing it further into the investment grade category. The rating action comes within months of all the three rating agencies upgrading Lenovo to investment grade in October 2020. Fitch has also upgraded the rating of Lenovo’s $1bn 3.421% 2030s in line with the company’s rating. The rating action has been driven by better than expected financial performance of the group. Fitch believes that the company has a strong business model and solid execution backed by a strengthened leadership. The global PC shipments have been on the rise during 2020 and the momentum is likely to continue in 2021 albeit at a slower pace. Lenovo saw an increase of 11% YoY in its PC shipments in 2020 compared to its rivals HP and Dell, which saw an increase of 8%. The operating EBIT margin of the company improved to 4% from 3.1% YoY for the last twelve months. The Funds From Operations (FFO) leverage improved to 2.7x from 3.6x and is expected to reach 2.1x in FY22. Lenovo’s total debt reduced to $6.1bn as of December 2020 from $7.4bn in March 2020 and the deleveraging is likely to continue. The liquidity of the China-based company will be boosted by $1.5bn through its proposed Chinese Depositary Receipts (CDR) of up to 10% of its enlarged total number of common shares. According to the rating agency, “The upgrade reflects stronger global personal-computer (PC) demand, Lenovo’s solid execution of its strategy and its ongoing product mix improvement, driving the company’s market share gains, continued margin upside and higher operating cash generation.”
Lenovo’s 3.421% bonds due 2030 traded 0.7 points lower to 103.37 while its 5.875% 2025s were lower by 0.2 points to 114.8.
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