Hong Kong, October 31, 2018 -- Moody's Investors Service has assigned a B2 senior unsecured rating to
the USD notes to be issued by Huayuan Property Co., Ltd.
(B1 stable).
The rating outlook is stable.
The proceeds of the notes will be used to refinance existing indebtedness.
RATINGS RATIONALE
"The proposed note issuance will lengthen Huayuan Property's debt
maturity profile and will not materially affect its credit metrics,
since the proceeds will be used to refinance existing debt,"
says Cedric Lai, a Moody's Assistant Vice President and Analyst.
Huayuan Property's B1 CFR reflects its long operating history and
well-recognized brand in Beijing, as well as the company's
good funding access, underpinned by its close linkage with the Beijing
government.
However, the company's B1 CFR is constrained by (1) its relatively
small operating scale and volatile operating performance when compared
with domestic rated peers, (2) its weakening credit metrics,
and (3) increased execution risk and debt-funding needs associated
with its expansion to cities outside Beijing.
The company achieved 61% year-on-year contracted
sales growth to RMB9.1 billion in the first three quarters of 2018.
This sales performance will provide funding for the company's debt repayment
and support future revenue growth.
Moody's expects Huayuan Property's debt leverage, as
measured by revenue/ adjusted debt, will remain weak at around 45%-50%
over the next 12-18 months compared to 42% for the 12 months
ended June 2018 and 58% in 2017, because of rapid land acquisitions
to support growth and its expansion into new regions.
The company's interest coverage, as measured by adjusted EBIT/
interest, will likely also weaken to around 2.0x-2.5x
over the next 12-18 months from 2.8x for the 12 months ended
June 2018, due to an increase in interest expense from increased
debt levels and higher average borrowing costs amid the tight onshore
credit environment.
The stable outlook reflects Moody's expectation that Huayuan Property
will manage the refinancing of its short-term debt and adopt a
measured approach in land acquisitions to keep its debt leverage at appropriate
levels over the next 12-18 months.
The B2 senior unsecured rating is one notch lower than its CFR due to
structural subordination risk.
This risk reflects the fact that the majority of claims are at the operating
subsidiaries. These claims have priority over Huayuan Property's
senior unsecured claims in a bankruptcy scenario. In addition,
the holding company lacks significant mitigating factors for structural
subordination. As a result, the likely recovery rate for
claims at the holding company will be lower.
Huayuan Property's rating could be upgraded if it improves its debt leverage,
while achieving substantial growth in its operating scale.
Credit metrics that indicate a possible upgrade include: (1) revenue/adjusted
debt above 80%-85%; or (2) adjusted EBIT/interest
cover above 3x on a sustained basis.
The rating could be downgraded if Huayuan Property's credit metrics deteriorate
or its liquidity position weakens, or if the ownership by its parent
is reduced materially.
Credit metrics that could trigger a rating downgrade include EBIT/interest
coverage below 1.5x-2.0x 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.
Huayuan Property Co., Ltd. is a Chinese residential
developer. Its parent company, Beijing Huayuan Group Co.,
Ltd, effectively owned 53.24% of Huayuan Property
at 30 June 2018, through a direct shareholding of 46.40%
and a 6.84% ownership by a party acting in concert.
Huayuan Group is 100% owned by the Xicheng SASAC under the Xicheng
District People's Government of Beijing. Huayuan Property was listed
on the Shanghai Stock Exchange in 2008.
The company operates in Beijing, Tianjin, Zhuozhou,
Xi'an, Chongqing, Changsha, Guangzhou and Foshan.
At the end of May 2018, it had a land bank of around 3.8
million square meters by gross floor area (GFA).
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
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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
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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.
Cedric Lai
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
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Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Clement Wong
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
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Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
