Hong Kong, May 27, 2021 -- Moody's Investors Service has assigned a B1 rating to the proposed senior
unsecured USD notes to be issued by Times China Holdings Limited (Ba3
stable).
The rating outlook is stable.
Times China plans to use the proceeds from the proposed notes to refinance
its existing offshore debt.
RATINGS RATIONALE
"Times China's Ba3 CFR reflects the company's growing operating
scale, leading market position in Guangdong province, robust
profitability supported by its good track record of property development
and increasing urban redevelopment project (URP) conversions, and
good liquidity profile," says Danny Chan, a Moody's
Assistant Vice President and Analyst.
"At the same time, the Ba3 CFR is constrained by the company's
geographic concentration in Guangdong province and increasing exposure
to its joint venture (JV) businesses, which lowers the transparency
of its credit metrics," adds Chan, who is also Moody's
lead analyst for Times China.
The proposed bond issuance will lengthen Times China's debt maturity profile
and improve its liquidity without having a material impact on its credit
profile, because the company will use the proceeds to refinance
maturing debt.
Moody's expects Times China's leverage, as measured by revenue/adjusted
debt, to improve to 60%-65% in the next 1-2
years from 54% in 2020, because the company's revenue
will increase as construction activities normalize following coronavirus-related
disruptions in 2020.
Additionally, Times China's low-cost land bank and
growing contribution from URP will allow it to maintain good profitability,
with projected gross margin at 28% in the next 1-2 years,
similar to the level in 2020. Improving leverage and stable profit
margin will strengthen Times China's EBIT/interest to around 3.0x
over the next 1-2 years from 2.4x in 2020.
The company achieved contracted sales of RMB28.3 billion in the
first four months of 2021, growing a strong 65.5%
from the same period in 2020 due to a low base. Moody's expects
Times China's annual contracted sales growth will remain healthy
at around 10%-15% per annum over the next 1-2
years, supported by abundant saleable resources and the company's
good execution track record. This sales performance will support
Times China's liquidity and future revenue recognition. The
company's gross contracted sales increased 28% to RMB100.4
billion in 2020, following a similar 29% growth in 2019.
The B1 rating on the proposed notes reflects the risk of structural subordination,
given the fact that most claims are at the 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, reducing the expected recovery rate
for claims at the holding company level.
Times China's liquidity is good. Moody's expects the company's
cash holdings and operating cash flow will be sufficient to cover its
committed land payments and maturing debt in the next 12-18 months.
In addition, the company's reported cash balance of RMB37.9
billion (including restricted cash of RMB4.4 billion) as of December
2020 is more than sufficient to cover its short-term debt of RMB19.1
billion as of December 2020.
As for environmental, social and governance (ESG) risks, Moody's
has considered Times China's increased JV exposure, which
reduces the transparency of its credit metrics.
Moody's has also considered Times China's concentrated ownership
by its key shareholders, Shum Chiu Hung and his wife, who
jointly hold a 61.5% stake as of December 2020. This
risk is mitigated by the company's adherence to the Listing Rules
of the Hong Kong Stock Exchange and the Securities and Futures Ordinance
in Hong Kong on related-party transactions, and the presence
of three independent nonexecutive directors on the company's six-member
board of directors, which provides management oversight.
The independent nonexecutive directors also chair the company's
audit and remuneration committees.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The stable outlook reflects Moody's expectation that, in the
next 12-18 months, Times China's credit metrics will
improve from the weakened level in 2020, driven by revenue growth,
stable margins and slowing debt increase as the company controls its land
acquisition approach.
Moody's could upgrade the ratings if Times China achieves stable sales
growth and increased operating scale, maintains its strong liquidity
position and improves its credit metrics.
Credit metrics indicative of an upgrade include EBIT/interest coverage
above 3.5x, revenue/adjusted debt above 75%-80%
and cash/short-term debt above 1.5x, all on a sustained
basis.
Conversely, Moody's could downgrade the ratings if the company's
sales decline, its debt leverage increases or liquidity position
weakens, or if it undertakes aggressive land or project acquisitions.
Credit metrics indicative of a downgrade include EBIT/interest coverage
below 2.5x, revenue/adjusted debt below 60%,
or cash/short-term debt below 1.0x, all 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.
Based in Guangdong province, Times China Holdings Limited is a property
developer that focuses on meeting end-user demand for mass-market
housing. As of December 2020, it had 138 property projects
across 15 cities in Guangdong and in major provincial cities outside the
province, such as Changsha, Wuhan, Chengdu and Hangzhou.
The company's land bank totaled around 21.6 million square meters
as of December 2020.
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
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Danny Chan
Asst Vice President - 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
