Hong Kong, December 09, 2020 -- 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).
Huayuan Property will use the proceeds of the notes to refinance its existing
debt.
RATINGS RATIONALE
"Huayuan Property's B1 corporate family rating (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," says Cedric Lai,
a Moody's Vice President and Senior Analyst.
"However, the company's B1 CFR is constrained by its relatively
small operating scale, volatile operating performance and weak credit
metrics," adds Lai.
The proposed note issuance will improve Huayuan Property's liquidity profile
but not materially affect its credit metrics, because the company
will use the proceeds to refinance existing debt.
Moody's expects that Huayuan Property's debt leverage, as measured
by revenue/adjusted debt, will improve to 40% level over
next 12-18 months from 30% for LTM June 2020, supported
by our expectation of the company's strong revenue recognition,
as well as its disciplined approach to control debt increase in the next
12-18 months. Similarly, Moody's expects its
EBIT/interest will trend towards 2.0 over the next 12-18
months from 1.7x for LTM June 2020.
The company's total contracted sales grew 19.1% to
RMB11.0 billion in the first nine months of 2020 compared with
the same period last year. Moody's expects Huayuan Property's
contracted sales will slightly increase to RMB16 billion-RMB17
billion in the next 12-18 months, supported by its sufficient
saleable resources and recovering economic activity in China. Huayuan
Property's growing contracted sales will support its future revenue
recognition.
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 and 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 expected recovery
rate for claims at the holding company will be lower.
In terms of environmental, social and governance (ESG) factors,
Moody's has considered (1) its majority ownership by Huayuan Group,
which is under the supervision and monitoring of Beijing government;
(2) the disclosure of material related-party transactions as required
under the Corporate Governance Code for companies listed on the Shanghai
Stock Exchange; and (3) the existence of three special committees
(including Audit Committee, Nomination and Remuneration Committee,
and Strategic Committee) to supervise operations.
Moody's regards the impact of the deteriorating global economic outlook
amid the rapid and widening spread of the coronavirus outbreak as a social
risk under its ESG framework, because of the substantial implications
for public health and safety.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Huayuan Property's stable outlook reflects Moody's expectation that
Huayuan Property will manage the refinancing of its short-term
debt and adopt a measured approach to land acquisitions to keep its debt
leverage at appropriate levels over the next 12-18 months.
Moody's could upgrade Huayuan Property's ratings if the company improves
its leverage while achieving substantial growth in its operating scale.
Credit metrics indicative of a possible upgrade include: (1) revenue/adjusted
debt above 80%-85%; or (2) adjusted EBIT/interest
coverage above 3x, both on a sustained basis.
Moody's could downgrade the ratings if there is any deterioration in its
credit metrics or liquidity, or the ownership by its government
parent reduces significantly. Credit metrics indicative of a ratings
downgrade include EBIT/interest coverage remaining 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 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.
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 2020, 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 listed on the Shanghai Stock Exchange in 2008.
The company operates in Beijing, Tianjin, Zhuozhou,
Xi'an, Chongqing, Changsha, Guangzhou and Foshan.
At 31 December 2019, its land bank totaled around 5.15 million
square meters by gross floor area.
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.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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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
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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
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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.
Moody's general principles for assessing environmental, social and
governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed by
Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main
60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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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
Vice President - Senior 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
