Research: Rating Action: Moody’s Downgrades Li & Fung Senior Unsecured Ratings to Ba1, Assigns Ba1 CFR; stable outlook


Hong Kong, September 19, 2022 — Moody’s Investors Service has assigned a Ba1 corporate family rating (CFR) to Li & Fung Limited and removed the company’s Baa3 issuer rating.

At the same time, Moody’s downgraded the company’s senior unsecured bond rating to (1) Ba1 from Baa3, (2) provisional (P)Ba1 from (P)Baa3 the rating of its mid-term rating program ( MTN) senior unsecured, (3) provisional (P)Ba3 of (P)Ba2 its MTN preferred share program rating, and (4) Ba3 of Ba2 its perpetual subordinated note rating.

Moody’s also revised the rating outlook to stable from ratings under review. This concludes the decommissioning review initiated on September 5, 2022.

“The ratings downgrades reflect the company’s reduced business diversity and revenue base following the sale of its logistics segment, despite a significant reduction in its net debt level,” said vice president Gloria Tsuen. -president and head of credit at Moody’s.


With the sale of LF Logistics Holdings Limited and its various entities in August to AP Moller-Maersk A/S (Baa2 positive), the diversity of Li & Fung’s business has been reduced to the commercial segment and its revenue base has shrunk. LF Logistics generated around two-thirds of Li & Fung’s adjusted EBITDA in 2021, although its contribution to overall revenue was only 20-25%.

Li & Fung’s business has experienced multi-year revenue and profit declines due to structural difficulties faced by its retail customers. As the company progresses in the recovery of its business activity, its profits and profitability after the sale of its logistics segment will remain significantly below pre-2020 levels for at least the next few years.

On the other hand, Moody’s expects Li & Fung’s adjusted net debt/EBITDA to decline to 1.5x-2.0x by 2023 from around 3.3x in 2021. Adjusted debt/EBITDA will also decline less than 5x in 2023 versus approximately 7x in 2022. These forecasts are based on assumptions that (1) the company will use more than half of the proceeds for debt reduction and building up a cash reserve; and (2) earnings will gradually rebound and capital expenditures will be weak, supporting positive free cash flow.

Since the improved capital structure only partially offsets the weakening of its business profile, Li & Fung’s overall credit profile is more in line with the Ba1 rating.

Li & Fung’s Ba1 ratings incorporate the company’s unique position in the global consumer products sourcing and trading market, high levels of customer and supplier diversification, long operating history and prudent financial management resulting in very good liquidity. Its asset-light business model also means low capital expenditure requirements, allowing it to generate free cash flow from 2023.

At the same time, the ratings reflect the company’s concentrated operations in trading, low margins and profits, as well as execution risks associated with the recovery of trading activities.

Li & Fung’s business activity improved in 2021 and rebounded further in terms of revenue and profit in the first half of 2022 compared to a year ago. Moody’s expects operating performance to continue to improve, driven by a strengthened customer base, improved services and reduced costs.

That said, there is a degree of uncertainty stemming from reduced consumer demand amid a slowing global economy and the company’s limited track record of business recovery.

Li & Fung’s liquidity remains very good, with enough cash to cover its short-term debt and most of its long-term debt only maturing in 2024 and 2025.

In terms of environmental, social and governance (ESG) considerations, the ratings take into account social risks related to changing consumer preferences towards online shopping, which has led to structural weakness for traditional retailers and businesses. business of the company. In terms of governance risk, the ratings take into account the good credibility of Li & Fung’s management and its prudent financial policy, as illustrated by its very long operating history and its continuous debt reductions.


The stable outlook reflects Moody’s expectation that the company’s business operations will continue to improve, and the company will maintain a strong balance sheet and strong liquidity.

A rating upgrade is unlikely in the next 1-2 years, given the company’s low earnings scale and reduced business diversity. The rating could be upgraded over time if the company (1) significantly increases its size, earnings base and profitability; (2) maintains strong liquidity and generates free cash flow; and at the same time (3) improves its adjusted debt/EBITDA to less than 2x.

Moody’s could downgrade Li & Fung’s ratings if (1) the company fails to sustain revenue and earnings growth; (2) its adjusted debt/EBITDA does not fall below 5.0x by the end of 2023; (3) it pursues aggressive acquisitions or shareholder return policies; or (4) its liquidity drops below $500 million.

The main methodology used in these ratings is Distribution & Supply Chain Services Industry published in June 2018 and available at Otherwise, please see the Scoring Methodologies page on for a copy of this methodology.

Founded in 1906, Li & Fung Limited is a global consumer products sourcing and trading company. Based in Hong Kong, it has an extensive global network of supply chains in over 50 countries.


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Gloria Tsuen, CFA
VP – Senior Credit Officer
Corporate Finance Group
Moody’s Investors Service Hong Kong Ltd.
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88 Queens Road
China (Hong Kong SAR)
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Chris Park
Associate General Manager
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Customer Service: 852 3551 3077

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