NOTE: On May 17, 2019, the press release was corrected as follows: “first-time” was removed from the headline and first paragraph. Revised release follows:
Hong Kong, May 15, 2019 -- Moody's Investors Service has assigned a B1 corporate
family rating (CFR) to Kaisa Group Holdings Ltd.
The outlook is stable.
RATINGS RATIONALE
"Kaisa's B1 CFR reflects the company's strong brand and sales execution
in the Guangdong-Hong Kong-Macao Bay Area, established
track record with higher-margin urban redevelopment projects,
and good quality land banks in high-tier cities, such as
Shenzhen," says Danny Chan, a Moody's Assistant Vice President
and Analyst.
"However, the company's rating is constrained by its
moderate financial metrics, history of debt restructuring and shares
suspension, and high financial costs," adds Chan, who
is also Moody's Lead Analyst for Kaisa.
Kaisa has a long operating history that spans over 20 years and has established
a well-recognized brand, particularly in urban redevelopment
projects, in Shenzhen and cities in the Guangdong-Hong Kong-Macao
Bay Area (Great Bay Area).
The company's strong market position and sizeable land bank in Shenzhen
position it well to benefit from Shenzhen's strong economy and housing
demand.
As a result, Moody's expects that Kaisa's attributable contracted
sales will continue to grow by 18% to around RMB83 billion in 2019
from RMB70 billion in 2018, and increase further by 35% to
around RMB112 billion in 2020, in view of its sizable saleable resources,
including the continued conversion of urban redevelopment projects in
higher-tier cities. This scale is large when compared with
many of its B1-rated Chinese property peers.
Kaisa's urban redevelopment projects support the company's
higher gross margins, because of the lower land acquisition costs
associated with this type of projects relative to the cost of acquiring
lands from public auctions in Shenzhen.
Moody's estimates that the company's gross profit margins will increase
to 31%-32% in the coming 12-18 months compared
with 29% in 2018, because of the increased contribution from
urban redevelopment projects.
At 31 December 2018, the company's total saleable resources comprised
a gross floor area of around 24 million square meters across 45 cities.
Of the 24 million square meters, more than seven million were from
urban redevelopment projects; accounting for 30% of Kaisa's
total land bank by gross floor area. In excess of 3.2 million
square meters were located in Shenzhen, accounting for 35%
of the total land bank by sales value.
Moody's estimates that Kaisa's land bank can support its property
development business for the next 4-5 years, based on its
contracted sales in 2018.
Kaisa's rating is constrained by its high debt leverage.
Moody's expects Kaisa's revenue to maintain strong growth
supported by its robust contracted sales. As a result, its
revenue/adjusted debt will rise to around 51% and 63% in
2019 and 2020, from 36% in 2018.
Likewise, its adjusted EBIT/interest coverage should improve to
2.1x in 2019 and 2.5x in 2020 from 1.7x in 2018.
These credit metrics and the scale of its attributable contracted sales
— which totaled RMB70 billion in 2018 — position the company's
CFR at the B1 rating level.
Kaisa's B1 rating has factored in its history of debt restructuring
and shares suspension, as well as high funding cost.
Reports on the sales ban of its property projects in Shenzhen in October
2014 precipitated a liquidity churn that led to Kaisa's debt restructuring
in 2016-17. Nevertheless, the company has not experienced
any sales ban since 2014.
Moody's points out that the company changed its auditor to Grant
Thornton in 2016 and took steps to improve its reporting and internal
control issues. Consequently, the Hong Kong Stock Exchange
approved the resumption of its share trading in March 2017.
The company's trust loan financing and other onshore borrowings
totaled RMB23.5 billion at 31 December 2018, representing
20% of its total borrowings at 31 December 2018, which resulted
in a higher average funding cost of approximately 8.4% in
2018. Moody's expects that Kaisa will expand its offshore
borrowings to reduce its reliance on onshore trust borrowings, because
onshore trust borrowings involve relatively higher funding cost.
Kaisa's liquidity is good. At 31 December 2018, the company's
cash balance totaled RMB22 billion, an amount which can cover 131%
of its short-term debt. Moody's expects Kaisa's
cash holdings, together with its operating cash flow, are
sufficient to cover its short-term debt, as well as estimated
committed land payments over the next 12-18 months.
The stable outlook reflects Moody's expectation that Kaisa will
maintain sales growth in high-tier cities, high profit margins
and good liquidity.
The stable outlook also incorporates Moody's expectation that Kaisa
will expand its access to funding over the next 12--18 months.
Moody's could upgrade Kaisa's rating if the company (1) maintains
its good liquidity position; (2) diversifies its funding channels;
and (3) improves its EBIT/interest to above 3.0x-3.5x
and its revenue/adjusted debt to above 75%-80% on
a sustained basis.
However, Moody's could downgrade the rating, if the company
fails to achieve sales growth, or aggressively acquires lands beyond
Moody's expectation, such that its financial metrics and liquidity
deteriorate.
Deteriorating credit metrics that could trigger a rating downgrade include:
(1) revenue/adjusted debt below 50% on a sustained basis;
(2) EBIT/interest coverage below 2.0x on a sustained basis;
or (3) cash to short-term debt below 1.0x-1.5x.
The principal methodology used in this rating was Homebuilding And Property
Development Industry published in January 2018. Please see the
Rating Methodologies page on www.moodys.com for a copy of
this methodology.
Kaisa Group Holdings Ltd engages in real estate development in China.
Its operations also involve property management and non-property
related businesses, including hotel and catering operations,
cinema, department store and cultural center operations, and
waterway passenger and cargo transportation.
At 31 December 2018, it had an aggregate gross floor area of 24
million square meters of saleable resources across 45 cities in China.
Founded in 1999, the company is listed on the Hong Kong Stock Exchange,
with its headquarters in Shenzhen.
At 31 December 2018, Kaisa was 39%-owned by its founder,
Mr. Kwok Ying Shing, and his family members.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
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Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
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Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
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.
Danny Chan
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
