Hong Kong, June 28, 2021 -- Moody's Investors Service has affirmed Huayuan Property Co.,
Ltd.'s B1 corporate family rating (CFR) and B2 senior unsecured
ratings.
The rating outlook remains stable.
"The rating affirmation reflects our expectation that Huayuan Property
will maintain an uninterrupted access to funding given its government
ownership background," says Kelly Chen, a Moody's Assistant
Vice President.
"It also reflects our expectation that the company's key credit
metrics will slightly improve over the next 12-18 months as the
company increases revenue recognition and controls its expansion and debt
level," adds Chen.
RATINGS RATIONALE
Huayuan Property's B1 CFR reflects its long operating history and
well-recognized brand in Beijing, and the company's
good funding access given its state-owned enterprise background.
However, the company's B1 CFR is constrained by its (1) small operating
scale and volatile operating performance, (2) weak credit metrics
and (3) execution risk due to expansion into new cities.
Moody's expects Huayuan Property's debt leverage, as measured by
revenue/adjusted debt, to improve slightly to 30%-35%
over the next 12-18 months from 30% as of the end of 2020,
supported by mild revenue growth and a largely flat debt level over the
next 12-18 months. The latter is a result of the company's
scaling back of land acquisitions to control debt. Similarly,
Moody's expects its EBIT/interest to increase trend towards 2.0x
over the next 12-18 months from 1.8x for 2020.
Nevertheless, the company's financial metrics remain weak,
which will limit its financial flexibility for business expansion over
the next 12-18 months.
As a result, Huayuan Property's contracted sales are likely to drop
mildly to around RMB18 billion for 2021 and 2022, after growing
27% to RMB19.1 billion in 2020.
However, the company's weak financials will be partly tempered
by its adequate liquidity and continuing access to funding because of
its close linkage to the Xicheng district government in Beijing.
Despite tighter onshore credit conditions, the company issued RMB5.1
billion of onshore corporate bonds during the first half of 2021 for refinancing.
These bonds were guaranteed by Beijing Financial Street Capital Operation
Center (BFSCOC), the second-largest shareholder of its parent,
Huayuan Group. BFSCOC is fully-owned by the Xicheng district
State-owned Assets Supervision and Administration (SASAC),
which is the largest shareholder of Huayuan Group.
Moody's expects Huayuan's cash balance after issuance of such
bonds, together with its operating cash flow, to be sufficient
to cover its short-term debt, committed land premiums and
dividend payments over the next 12-18 months.
The B2 senior unsecured rating is one notch lower than its CFR due to
structural subordination risk. This risk reflects the fact that
the majority of claims are at the operating subsidiaries and have priority
over Huayuan Property's senior unsecured claims 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 (ESG) factors,
Moody's has considered (1) Huayuan Property's majority ownership
by Huayuan Group, which is under the supervision and monitoring
of Xicheng district government; (2) the disclosure of material related-party
transactions as required under the Corporate Governance Code for companies
listed on the Shanghai Stock Exchange; and (3) the existence of three
special committees (including Audit Committee, Nomination and Remuneration
Committee, and Strategic Committee) to supervise operations.
In terms of dividend payments, Huayuan Property maintained a largely
stable payout ratio at 34%-38% of attributable net
income in 2018-2020.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Huayuan Property's stable outlook reflects Moody's expectation that Huayuan
Property will improve its financial metrics and maintain adequate liquidity
over the next 12-18 months.
Moody's could upgrade Huayuan Property's ratings if the company materially
improves its leverage while achieving substantial growth in its operating
scale. Credit metrics indicative of a possible upgrade include:
(1) a material improvement in its debt leverage; or (2) adjusted
EBIT/interest coverage above 3x, both on a sustained basis.
Moody's could downgrade the ratings if there is any deterioration in its
credit metrics or liquidity, or the ownership by its government
parent reduces significantly. Credit metrics indicative of a ratings
downgrade include EBIT/interest coverage falling below 1.5x-2.0x
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.
Huayuan Property Co., Ltd. is a Chinese residential
developer. Its parent company, Beijing Huayuan Group Co.,
Ltd, effectively owned 53.24% of Huayuan Property
at 2020, through a direct shareholding of 46.40% and
a 6.84% ownership by a party acting in concert.
Huayuan Group is 100% owned by the Xicheng SASAC under the Xicheng
District People's Government of Beijing.
Huayuan Property listed on the Shanghai Stock Exchange in 2008.The
company operates in Beijing, Tianjin, Shijiazhuang,
Chongqing, Changsha, Guangzhou and Foshan. As of 31
December 2020, its land bank totaled around 5.2 million square
meters by gross floor area.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions in the disclosure form. Moody's Rating Symbols and
Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Chen Chen
AVP-Analyst
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
