Hong Kong, January 09, 2020 -- Moody's Investors Service has assigned a B1 senior unsecured rating to
the proposed USD bonds to be issued by Central China Real Estate Limited
(CCRE, Ba3 stable).
CCRE will use the proceeds from the proposed bonds to refinance existing
medium to long-term indebtedness.
RATINGS RATIONALE
"The proposed bonds — which will be mainly used for debt refinancing
— will not have a material impact on CCRE's credit metrics,
but they will improve the company's liquidity and debt maturity profile,"
says Kaven Tsang, a Moody's Senior Vice President.
"CCRE's Ba3 corporate family rating (CFR) reflects its leading market
position and long operating track record in Henan Province,"
adds Tsang, who is also Moody's Lead Analyst for CCRE.
The rating also takes into consideration the company's track record of
achieving positive growth in contracted sales as well as its adequate
liquidity.
At the same time, CCRE's geographic concentration in Henan exposes
it to potential volatility in the province's economy, as well
as any changes in the local government's regulatory restrictions on the
property sector. The rating also captures execution risks and funding
needs associated with the company's fast growth plan and sizable exposure
to its joint ventures (JVs).
CCRE's contracted sales in heavy assets grew 33.8% year-on-year
to RMB71.8 billion in 2019 after growing 76.5% in
2018. This strong sales performance will support the company's
revenue growth over the next one to two years.
Moody's expects CCRE's revenue/adjusted debt, adjusted for
the financials of its JVs, to improve to around 75%-80%
over the next 12-18 months from Moody's estimate of 62%
for the 12 months to 30 June 2019, mainly driven by robust revenue
growth.
On the other hand, CCRE's adjusted EBIT/interest, including
from its shares in JVs, will decline to around 2.5x compared
with Moody's estimate of 2.8x during the same periods,
because of an increase in CCRE's interest expenses as a result of
its higher debt level and increased cost of funding.
Nevertheless, these projected metrics remain appropriate for CCRE's
Ba3 CFR.
On governance risks, Moody's has taken into account the company's
concentrated ownership in its controlling shareholder, Wu Po Sum,
who held a 74.84% stake in the company at 30 June 2019.
This factor is partly mitigated by (1) the company's demonstrated
discipline in land acquisitions, (2) the presence of special committees
— in particular, the audit and remuneration committees —which
are chaired by independent nonexecutive directors to oversee corporate
governance, and (3) the application of the Listing Rules of the
Hong Kong Stock Exchange and the Securities and Futures Ordinance in Hong
Kong in governing related-party transactions.
CCRE's liquidity is adequate. It had unrestricted cash totaling
RMB19.2 billion at 30 June 2019. Adjusted cash/short-term
debt —including amounts due to and from its JVs — was at 120%
at the same date. Moody's also expects CCRE's cash holdings,
plus its operating cash flow, will be sufficient to cover its short-term
debt and committed land premiums over the next 12 months.
The B1 senior unsecured debt rating is one notch lower than the CFR due
to structural subordination risk.
This risk reflects the fact that the majority of CCRE's claims are
at its 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 of these factors, the likely recovery rate for claims
at the holding company will be lower.
The stable outlook reflects Moody's expectation that CCRE can maintain
(1) its leadership position in Henan Province and generate sales growth;
(2) its adequate liquidity levels; and (3) a disciplined approach
to land acquisitions.
Moody's could upgrade the ratings if CCRE (1) consistently achieves
its sales targets; (2) demonstrates a track record of good financial
discipline by keeping adjusted cash/short-term debt above 2.0x,
adjusted revenue/debt above 90% and adjusted EBIT/interest above
4.0x, all on a sustained basis; with the ratios adjusted
for its JV financials; and (3) broadens its geographic coverage in
a disciplined manner and strengthens its offshore banking relationships.
Moody's could downgrade the ratings if CCRE (1) experiences a significant
decline in sales; (2) suffers a material decline in profit margins;
(3) accelerates its expansion, such that its liquidity position
deteriorates or its debt levels rise materially, or both; or
(4) experiences more frequent construction stoppages where the company
is unable to make up for the lost time and misses deadlines on project
deliveries.
Specific indicators for a downgrade include CCRE's (1) adjusted
cash/short-term debt falling below 1.0x-1.5x,
(2) adjusted EBIT/interest staying consistently below 2.5x-3.0x,
or (3) adjusted revenue/debt falling below 70%-75%
on a sustained basis. The ratios are adjusted for its JV financials.
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.
Central China Real Estate Limited is a leading property developer in Henan
Province, with a land bank of 37.19 million square meters
in attributable gross floor area at the end of June 2019. It was
founded in 1992 and listed on the Hong Kong Stock Exchange in June 2008.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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
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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,
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to rated entity, Disclosure from rated entity.
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Please see www.moodys.com for any updates on changes to
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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.
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
