Hong Kong, November 04, 2021 -- Moody's Investors Service has changed Agile Group Holdings Limited's
rating outlook to negative from stable.
At the same time, Moody's has affirmed Agile's Ba2 corporate
family rating (CFR) and Ba3 senior unsecured ratings.
"The outlook change to negative reflects our view that difficult operating
and funding conditions will weaken Agile's liquidity and credit
metrics over the next 6-12 months," says Kaven Tsang,
a Moody's Senior Vice President.
"Meanwhile, the rating affirmation reflects our expectation
that Agile will maintain adequate liquidity that would provide the company
with some flexibility to manage its material refinancing needs over the
next 6-12 months," adds Tsang.
RATINGS RATIONALE
Agile's CFR reflects the 1) company's strong market position and
solid track record of property development in its core Guangdong and Hainan
markets; 2) history of disciplined financial management; 3)
adequate liquidity; and 4) increasing business and geographic diversification.
However, the company's CFR is constrained by its modest financial
metrics, exposure to financial and execution risks associated with
its expansion in non-property businesses, and high refinancing
needs over the next 12-18 months.
Agile had unrestricted cash of RMB46.5 billion as of 30 June 2021
and short-term debt of RMB39.7 billion as of the same date.
Moody's believes Agile would have to use its internal cash to repay
some of its maturing debt, given increased risk aversion by investors
and banks, and its weakened access to the offshore bond market,
as reflected in the decline in bond prices. This, in turn,
will reduce its operational and financial flexibility.
Moody's also expects the company to actively manage its refinancing
needs through new financing, asset sales, and refinancing
of part of its maturing offshore bank loans, given its established
banking relationship and track record. But any deviation from such
expectation will pressure the company's ratings.
Moody's forecasts the company's contracted sales will decline to
around RMB130 billion this year and RMB125 billion in 2022 from RMB138
billion in 2020, considering the weakened operating and tightened
funding conditions. In the first nine months, the company's
contracted sales rose 14% to RMB102 billion.
Moody's also expects Agile's profit margin to reduce over
the next 12-18 months amid weakening sales and increased land and
operating costs. This will offset the effect of a mild revenue
growth, driven mainly by its growing property management and environmental
protection businesses.
Accordingly, Agile's EBIT/interest coverage will stay at 2.5x-3.0x
over the next 12-18 months, versus 2.7x for the 12
months ended June 2021. This projected ratio positions the company
at the weaker end of its Ba2 CFR.
Agile's senior unsecured bond rating is one notch lower than its
CFR because of the risk of structural subordination. This subordination
risk reflects the fact that most of Agile's claims are at the operating
subsidiaries and have priority over claims at the holding company in a
bankruptcy scenario. In addition, the holding company lacks
significant mitigating factors for structural subordination. As
a result, the expected recovery rate for claims at the holding company
will be lower.
In terms of environmental, social and governance aspects,
Moody's has considered Agile's concentrated ownership by its key
shareholder, the Chen family, which held a total 66.3%
stake in the company as of the end of June 2021. The family has
a track record of injecting equity of around HKD1.6 billion into
the company to support its liquidity and refinancing needs during tough
times for the property market in 2014.
Agile's CFR has also taken into consideration the presence of internal
governance structures and disclosure standards, as required under
the Corporate Governance Code for companies listed on the Hong Kong Stock
Exchange.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of Agile's ratings is unlikely, given the negative
outlook. However, the outlook could be revised to stable
if Agile strengthens its access to funding, liquidity and credit
metrics, and maintains stable operating cash flow.
Credit metrics supporting a stable outlook include EBIT/interest coverage
rising to above 3.0x-3.5x, revenue/adjusted
debt staying above 70%, and unrestricted cash/short-term
debt above 1.0x-1.5x on a sustained basis.
On the other hand, Moody's could downgrade Agile's ratings
if its liquidity and refinancing risks heighten due to further weakening
in funding access, its inability to secure new funding or a material
decline in operating cash flow occurs because of a fall in property sales.
Downward rating pressure could also develop if Agile's debt or contingent
liabilities increase materially, weakening its credit metrics.
Metrics that would indicate downgrade pressure include EBIT/interest coverage
unlikely to improve to 3.0x-3.5x, revenue/adjusted
debt under 65%-70%, or unrestricted cash/short-term
debt below 1.0x-1.5x on a sustained basis.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Agile Group Holdings Limited (Agile) is one of China's major property
developers. As of 30 June 2021, the company had a land bank
with a gross planned gross floor area (GFA) of 53 million square meters
(sqm).
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Kaven Tsang
Senior Vice President
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Franco Leung
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
