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Rating Action:

Moody's assigns B1 to Sunac's proposed USD notes

 The document has been translated in other languages

08 Apr 2019

Hong Kong, April 08, 2019 -- Moody's Investors Service has assigned a B1 senior unsecured rating to Sunac China Holdings Limited's (Ba3 stable) proposed USD notes.

The company plans to use the proceeds from the issuance mainly to refinance existing debt.

RATINGS RATIONALE

"The proposed bond issuance will support Sunac's liquidity profile and will not materially affect its credit metrics, as it will use the proceeds mainly to refinance existing debt," says Danny Chan, a Moody's Assistant Vice President and Analyst.

Driven by an expected increase in revenue recognition from strong contracted sales and controlled spending on land purchases and non-property investments, Sunac's debt leverage — as measured by revenue/adjusted debt (including adjustments for its shares in joint ventures and associates) — will likely improve to 75%-80% over the next 12-18 months from around 60% in 2018 and around 36% in 2017.

Moody's also expects Sunac's interest coverage — as measured by adjusted EBIT/interest — will improve to 3.0x-3.2x over the next 12-18 months from around 2.6x in 2018.

Following 27% and 140% contracted sales growth in 2018 and 2017, Sunac continued to report solid 11% year-on-year contracted sales growth for the three months ended 31 March 2019.

Moody's expects the company's contracted sales will remain solid but slow down in the next 1-2 years from a high base. The expected solid but moderating sales growth in contracted sales is based on the company's established brand name, quality products and sizable saleable resources of approximately RMB783 billion for 2019.

Sunac's liquidity is adequate. Its cash balance of RMB120 billion at the end of 2018 was sufficient to cover 131% of its short-term debt.

Sunac's Ba3 CFR reflects the company's strong sales execution, leading brand and market position in China's Tier 1 and Tier 2 cities, as well as the good quality of its land bank. The rating also considers Sunac's good liquidity profile, driven by its rapid asset turnover business model.

However, the CFR is constrained by the modest credit metrics associated with Sunac's business expansion. In addition, the adoption of a rapid asset turnover business model has reduced the stability of its profitability and interest coverage. Nevertheless, Moody's expects that the company's credit metrics will improve over the next 12-18 months.

The stable outlook reflects Moody's expectation that the company will further improve its profitability, remain prudent in its financial management and control its investments in non-property businesses.

The B1 senior unsecured debt rating is one notch lower than the corporate family rating due to structural subordination risk.

This risk reflects the fact that the majority of claims are at the operating subsidiaries and have priority over Sunac's senior unsecured claims in a bankruptcy scenario. In addition, the holding company lacks significant mitigating factors for structural subordination.

Upward ratings pressure could emerge if Sunac: (1) demonstrates its ability to exercise restraint in its non-core business investments; (2) maintains its solid liquidity position; and (3) improves its credit metrics, such that adjusted revenue/debt rises above 95%-100% and adjusted EBIT/interest rises above 3.5x-4.0x on a sustained basis.

However, the ratings could be downgraded in case of: (1) a material decline in its contracted sales; (2) a weakening liquidity position; (3) substantial investments in its non-property development businesses; or (4) weakening credit metrics, such that adjusted revenue/debt falls below 60%-70% and adjusted EBIT/interest drops below 2.5x-3.0x on a sustained basis.

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.

Listed on the Hong Kong Stock Exchange on 7 October 2010, Sunac China Holdings Limited is an integrated residential and commercial property developer with projects in China's main economic regions. The company develops a diverse range of properties, including high-rise and mid-rise residences, detached villas, town houses, retail properties, offices and car parks.

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.

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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 review.

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 the rating.

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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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