Moody's eyes VNET for downgrade

Moody's Investors Service said it placed VNET Group, Inc.'s B2 corporate family rating under review for downgrade. The outlook was negative before ratings under review.

"The review of VNET's rating for downgrade reflects our view that the recent event regarding the company's ownership structure highlighted its elevated change of control risk as a result of concentrated voting rights, which, if materialized, could trigger accelerated repayments of convertible bonds. Additional uncertainty in the company's capital structure makes its significant refinancing task more challenging, despite continuing revenue growth and steady industry demand," said Shawn Xiong, a Moody's vice president and senior analyst, in a press release.

VNET reported its board of directors has approved and authorized the issuance of up to 555,000 newly created class D ordinary shares to Sheng Chen, the executive chairman of the board. The class D shares will have the same rights as the company's class B ordinary shares, but will have 50 times higher voting rights. VNET's class B shares have 10 times higher voting rights than class A shares.

Moody’s said the review will consider if VNET can stabilize its ownership structure over the next few months without hurting its business operations and funding access. The review will also focus on if management will make substantial progress to refinance or repay its upcoming debt maturities, including the $600 million of convertible bonds becoming puttable in February 2024, and keep its solid business profile and lower its debt leverage to below 6x, all on a sustained basis.

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