Hong Kong, March 01, 2019 -- Moody's Investors Service has assigned a B2 senior unsecured rating to
the proposed notes to be issued by Scenery Journey Limited and guaranteed
by Tianji Holding Limited (B2 positive).
The proposed notes will also be supported by a deed of equity interest
purchase undertaking and a keepwell deed between Hengda Real Estate Group
Company Limited (B1 positive), Tianji, Scenery, and
the bond trustee.
The note proceeds will be used mainly for offshore debt refinancing by
Hengda.
RATINGS RATIONALE
Moody's expects that the proposed notes issuance will slightly lengthen
the debt maturity profile of Hengda and Tianji and will not materially
affect the credit metrics of the two companies, because we expect
that the proceeds from the issuance will be mainly used to refinance their
existing debt.
Tianji's B2 CFR reflects the company's standalone credit profile and a
one-notch rating uplift, based on Moody's expectation that
Hengda will provide financial support to Tianji in a situation of financial
stress.
The one-notch uplift reflects (1) Hengda's full ownership of Tianji,
(2) Tianji's status as the primary offshore platform for Hengda to invest
in property projects and raise offshore funds, and (3) Hengda's
track record of providing financial support to Tianji.
Tianji's standalone credit profile factors in its moderately large scale,
weak liquidity, and weak credit metrics relative to B-rated
Chinese property developers.
Tianji's liquidity position is weak, and it has to rely on support
from Hengda. Its cash holdings of RMB20.6 billion at 30
June 2018 was inadequate to cover its short-term debt of RMB57.1
billion.
Moody's expects Tianji's EBIT/interest will fall to around 1.5x
over the next 12-18 months from 1.9x in 2017, because
of increased interest cost.
On the other hand, Tianji's debt leverage — as measured by
revenue/adjusted debt — will remain largely stable at around 25%
over the next 12-18 months from 27% at the end of 2017.
Tianji's positive rating outlook reflects the positive outlook on
Hengda's rating, as well as Hengda's strengthened capability to
provide support to Tianji in times of need.
Moody's expects that Hengda will have the ability to provide support,
if needed. Hengda's B1 CFR reflects its status as an onshore flagship
subsidiary of China Evergrande Group (B1 positive), and as the platform
that owns and manages Evergrande's core property development business
in China.
Hengda accounted for 94.6% of Evergrande's revenue
in 1H 2018 and 88.1% of Evergrande's total assets
at 30 June 2018.
Hengda's B1 CFR reflects its strong sales execution.
The company's large scale, as measured by contracted sales,
will continue to position it among the top residential developers in China
(A1 stable). This situation will support Hengda's access to the
domestic bank and debt markets.
In addition, the B1 CFR reflects Hengda's good profitability,
underpinned by a low-cost land bank and economies of scale.
However, Hengda's rating is constrained by its private company
status, because information disclosure is less transparent than
that of its listed peers.
The positive outlook on Hengda's rating reflects Moody's expectation that
Hengda will continue to improve its debt leverage over the next 12-18
months.
The B2 senior unsecured rating of the proposed notes reflects Moody's
expectation that Hengda will provide financial support through honoring
its obligations under the Deed of Equity Interest Purchase Undertaking
rather than through a payment guarantee.
The B2 senior unsecured rating is also unaffected by subordination to
claims at the operating companies because Moody's expects support from
Hengda to Tianji to flow through the holding company rather than directly
to the main operating companies; thereby mitigating any differences
in expected loss that could result from structural subordination.
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.
Hengda Real Estate Group Company Limited is among the top property developers
in China by sales volume, with a standardized operating model.
Founded in 1996 in Guangzhou, Hengda has rapidly expanded its business
across the country over the past few years. At 30 June 2018,
Hengda's land bank totaled 258 million square meters in gross floor area
across 228 cities in China.
Hengda is the property arm and the flagship subsidiary of China Evergrande
Group. At 30 June 2018, Evergrande owned 63.5%
of Hengda's shares.
Incorporated in Hong Kong in 2009, Tianji Holding Limited is an
offshore holding company that houses some of Hengda's property projects
in China and overseas, including Hengda's Hong Kong headquarters.
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
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
its ratings process. Please refer to www.moodys.com
for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
Policy for Designating Non-Participating Rated Entities.
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.
Cedric Lai
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
