Fitch Ratings has maintained the Rating Watch Negative (RWN) on
Fitch downgraded and placed Bright Scholar on RWN on
Fitch will resolve the Rating Watch upon completion of the disposal, which was delayed by slow progress in getting regulatory approvals. Delay in the disposal will continue to impair Bright Scholar's cash position, but we expect the company to have sufficient liquidity to repay the US dollar notes due in
Key Rating Drivers
Adequate Liquidity: Fitch expects Bright Scholar to have sufficient cash on hand to repay its outstanding US dollar bond due in
We estimate the company's cash outflow from March to
Diminished Scale, Lower Visibility: Fitch expects Bright Scholar to provide management services to affected schools after completion of disposal, which will offset some of the profit lost from discontinued operations. However, a prolonged delay or failure to complete the disposal would materially weaken the business profile as the remaining businesses are tiny and not cash generative.
We estimate the scale of Bright Scholar's normalised post-disposal EBITDA at
Continuing Operations Recovering: Fitch expects a gradual recovery in Bright Scholar's continuing operations, driven by the easing of travel restrictions in western countries, which support an increase in revenue from overseas schools and the overseas counselling business. The operating loss for Bright Scholar's continuing businesses, which are mainly overseas schools, complementary education services and domestic kindergartens and K-12 operation services, narrowed to
Limited Impact from Privatisation Proposal: Bright Scholar received proposal from its largest shareholders, Ms.
Derivation Summary
Bright Scholar has a much weaker business profile than
Bright Scholar has a better liquidity profile than
Key Assumptions
Single-digit revenue growth in FY22 and faster revenue growth in FY23 due to collection of service fees
EBITDA to improve in FY23, supported by recovery in overseas operations and collection of service fee income
No dividend for FY22-FY25
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The Rating Watch Negative will be resolved upon completion of the disposal
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Material deterioration in cash position due to, for instance, higher-than-expected cash outflow
A prolonged delay or failure to complete the disposal resulting in an inability to earn service fee income from affected schools by end of 2022
If the disposal is completed and results in a materially lower service fee income than Fitch's expectation
Deterioration in operating performance of its continuing businesses
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate Liquidity: Bright Scholar's reported cash and restricted cash balance of
Issuer Profile
Bright Scholar was previously a K-12 school operator in
Summary of Financial Adjustments
Fitch is using the multiple approach to capitalise leases for Bright Scholar and assess leverage on an adjusted basis. We think the multiple approach is more appropriate for education-service companies such as Bright Scholar under the generic navigator, as leasing school and facility premises form a core element of its operations. A multiple of 8x was used as the company is based in
Bright Scholar typically collects tuition and fees at the beginning of the semester and there are usually large 'contract liabilities' on its balance sheet. We have classified these as 'not readily available', and this amount is excluded from net debt calculations.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONS
Entity / Debt
Rating
Recovery
Prior
LT IDR
B
Rating Watch Maintained
B
senior unsecured
LT
B
Rating Watch Maintained
RR4
B
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