Hong Kong, January 08, 2019 -- Moody's Investors Service has assigned a B2 senior unsecured rating to
the proposed USD notes to be issued by China SCE Group Holdings Limited
(B1 stable).
The rating outlook is stable.
The proceeds from the proposed issuance will be used mainly to refinance
offshore existing debt.
RATINGS RATIONALE
"The proposed notes will improve China SCE's liquidity profile and lengthen
its debt maturity profile," says Danny Chan, a Moody's Analyst,
and also the Lead Analyst for China SCE.
Furthermore, the proposed notes will have a limited impact on the
company's leverage, because the majority of the proceeds will be
used to refinance offshore existing debt.
China SCE's B1 corporate family rating reflects its track record and strong
market position in Quanzhou in Fujian Province, growing operating
scale, good liquidity position, and stable profit margins
after its expansion in Tier 1 and 2 cities outside Fujian.
On the other hand, the corporate family rating is constrained by
China SCE's moderate debt leverage and the execution risks associated
with its expansion.
Moody's expects that China SCE's interest coverage — as measured
by adjusted EBIT/interest — will remain around 3.5x over
the next 12-18 months, largely unchanged from 3.4x
for the 12 months ended June 2018.
On the other hand, its debt leverage — as measured by revenue/adjusted
debt — will likely improve to around 70% from 54%
during the same period, supported by increased revenue recognition
from strong contracted sales growth over the past two years as well as
its prudent land acquisition strategy.
These credit metrics support its B1 corporate family rating.
Moody's expects China SCE will continue to exercise prudence in its land
acquisitions and debt management. Specifically, Moody's assumes
that the company will limit its land acquisitions to no more than 50%
of its total contracted sales, and keep debt growth within 30%-40%
year-on-year over the next 12-18 months.
Moody's expects China SCE's contracted sales, including
contributions from its joint ventures and associates, to register
meaningful growth in 2019. China SCE achieved contracted sales
of RMB46.5 billion in the first 11 months of 2018, representing
year-on-year growth of 63%. In 2017,
the company's contracted sales also grew 41% year-on-year
to RMB33 billion.
China SCE's liquidity is adequate. At the end of June 2018,
its cash balance of RMB17.1 billion was sufficient to cover its
short-term debt of RMB10.3 billion and committed land payments
over the next 12-18 months.
The B2 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 China SCE's senior unsecured claims
in a bankruptcy scenario. In addition, the holding company
lacks significant mitigating factors for structural subordination.
The stable outlook on China SCE's B1 corporate family rating reflects
Moody's expectation that the company will maintain its leverage ratio
in the range of 65%-75% over the next 12-18
months, supported by sustained revenue growth, stable gross
profit margins, as well as prudent land acquisitions and debt management
over the next 12-18 months.
China SCE's ratings could come under upward rating pressure if the company:
(1) demonstrates stable sales growth and increases its scale; (2)
maintains its prudent approach to land acquisitions; and (3) maintains
EBIT/interest coverage in excess of 3.0x and adjusted revenue/gross
debt in excess of 75%-80% on a sustained basis.
On the other hand, the company's ratings could come under downward
pressure if China SCE: (1) generates weak contracted sales;
(2) records a material decline in its profit margins; (3) experiences
an impairment of its liquidity position, such that cash/short-term
debt falls below 1.0x; and/or (4) materially increases its
debt leverage.
Credit metrics indicative of a ratings downgrade include EBIT/interest
coverage below 2.0x and/or adjusted revenue/debt below 65%
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.
Founded in 1996, China SCE Group Holdings Limited listed on the
Hong Kong Stock Exchange in February 2010. It was 52.4%
owned by its chairman, Mr. Wong Chiu Yeung as of 30 June
2018.
As of 30 June 2018, the company had a total land bank (excluding
investment properties) of 19.1 million square meters with nationwide
coverage in different tiers of cities across different regions in China.
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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the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
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for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
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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
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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
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
Chris Park
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
