Hong Kong, June 19, 2020 -- Moody's Investors Service has assigned a B3 rating to the proposed
senior unsecured USD notes to be issued by Jingrui Holdings Limited's
(B2 stable).
Jingrui plans to use the proceeds from the proposed notes to refinance
its existing indebtedness.
RATINGS RATIONALE
"The proposed bond issuance will lengthen Jingrui's debt maturity profile
and improve its liquidity position, without having a material impact
on the company's credit metrics," says Cedric Lai, a Moody's
Vice President and Senior Analyst.
Moody's expects Jingrui's leverage, as measured by revenue/adjusted
debt, will moderate to 55%-60% over the next
12-18 months from 64% in 2019, which is driven by
an expected increase in debt to replenish its land bank over the same
period.
On the other hand, Moody's expects the company's interest
coverage, as measured by adjusted EBIT/adjusted interest expenses,
will slightly improve to 2.0x-2.1x over the next
12-18 months from 1.7x in 2019, as the expected improving
gross margin from the top-tier cities projects will more than offset
the growth in interest expenses over the same period.
Jingrui's total contracted sales fell 20.4% year-on-year
to RMB5.5 billion for the first five months of 2020 due to coronavirus-related
disruptions. However, Moody's expects its sales will gradually
recover through the remainder of 2020, keeping total contracted
sales at around RMB23 billion-RMB26 billion in the coming 12-18
months from RMB25.2 billion in 2019.
Jingrui's B2 corporate family rating (CFR) reflects the company's
modest scale and moderate financial profile. The rating also takes
into account the company's track record of developing properties in Shanghai
and other cities in the economically strong Yangtze River Delta area.
However, the CFR is constrained by the company's relatively low
profitability and high geographic concentration in the Yangtze River Delta
area.
In terms of governance considerations, Moody's has taken into account
the concentrated ownership by Jingrui's founder and key shareholder,
Mr. Yan Hao, who approximately held a 38% stake in
Jingrui at 31 December 2019. The risk of a concentrated ownership
is mitigated by the presence of three special committees, the audit
committee, the remuneration committee and the nomination committee,
two of which are dominated and chaired by independent non-executive
directors. Additionally, the company has established internal
governance structures and standards as required under the Corporate Governance
Code for companies listed on the Hong Kong Stock Exchange.
Moody's regards the impact of the deteriorating global economic outlook
amid the rapid and widening spread of the coronavirus outbreak as a social
risk under its environmental, social and governance (ESG) framework,
given the substantial implications for public health and safety.
Jingrui's liquidity position is adequate. Moody's expects the company's
cash holdings along with its operating cash flow will be sufficient to
cover its committed land payments and maturing debt in the next 12-18
months.
As of December 2019, the company had a cash balance of RMB13.7
billion (including restricted cash of RMB3.1 billion), which
could cover about 1.5x of its short-term debt of RMB9.4
billion.
Jingrui's B3 senior unsecured debt 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 Jingrui'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.
The stable outlook reflects Moody's expectation that Jingrui will sustain
its improved sales execution for properties in higher-tier cities
in China and maintain adequate liquidity over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Moody's could upgrade the ratings if Jingrui substantially grows its scale
while maintaining (1) sound credit metrics, with adjusted revenue/debt
above 95%-100% and EBIT/interest coverage above 3.5x
on a sustained basis; and (2) an adequate liquidity position on a
sustained basis.
Moody's could downgrade the ratings if Jingrui's (1) liquidity weakens,
such that its cash/short-term debt falls below 100%;
and (2) profit margins come under pressure, constraining its interest
coverage and financial flexibility, such that its EBIT interest
coverage falls below 2.0x on a sustained basis.
The principal methodology used in this rating 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.
Jingrui Holdings Limited is a Shanghai-based property developer.
The company was listed on the Hong Kong Stock Exchange in October 2013.
It was originally established in 1993 as Shanghai Jingrui Property Development
Company by a group of businessmen, including its current key shareholders
and executive directors, Mr. Chen Xin Ge and Mr. Yan
Hao.
The company engages in property development, with a focus on residential
projects in the Yangtze River Delta and other second-tier cities
in China. As of December 2019, Jingrui had a total land bank
of about 4.71 million square meters, located across 19 cities
in China, including Tianjin, Ningbo, Suzhou, Hangzhou,
Wuhan and Shanghai.
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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Cedric Lai
Vice President - Senior 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.)
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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
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
