S&P cuts eHi Car Services

S&P said it lowered its ratings for eHi Car Services Ltd. and its debt to B- from B.

“The surprise VAT provision reduces eHi's liquidity amid approaching sizable maturities in early 2023 and adverse effect of Covid-19 control policy on operations. Net cash outflow from the unexpected VAT provision will likely be about Chinese renminbi (RMB) 130 million, despite the initial assessment of close to RMB 770 million. The company already paid about RMB 230 million and is expected to receive approximately RMB 100 million in VAT refund, while the remaining RMB 540 million will be netted against VAT assets available to the company.

While the net reduction in liquidity isn't substantial, this comes at a time when its liquidity buffer is already thin and debt capital market conditions are getting tight,” S&P said in a press release.

Additionally, the agency warned that disclosures in eHi's interim report could impede access to new funding. “The company's report for the second quarter said it failed to meet the requirements of financial indicators in some bank loan contracts and that may trigger a default and cross-default clauses,” S&P said.

The amount on the loan was less than RMB 100 million and eHi could resolve the issue with early repayment. S&P noted eHi did secure new facilities after the disclosure which could be used to repay the loan.

The outlook is negative.

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