Fitch Ratings has downgraded Chinese e-commerce platform Meituan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘BBB-‘ from ‘BBB’. The Outlook remains Negative. Fitch has also downgraded Meituan’s senior unsecured rating and ratings on its bonds to ‘BBB-‘ from ‘BBB’.
The downgrade reflects the greater regulatory uncertainty facing Meituan, which increases volatility in its profitability and investments. Fitch expects regulations enforcing delivery-rider benefits to pressure the operational efficiency and margin of Meituan’s food-delivery operation. In addition, the company’s new initiatives could evolve based on market opportunities and regulations, which reduces visibility on execution and the investment amount. As a result, we expect visibility on cash flow generation to be lower than previously thought.
The Negative Outlook reflects uncertainty about when Meituan will be able to return to positive EBITDA. Meituan’s net cash position is supportive of the current investment period in 2021, but a revision of the rating Outlook to Stable will hinge on evidence of improved profitability and moderating investments that allow free cash flow (FCF) to trend towards neutral.