Hong Kong, July 16, 2019 -- Moody's Investors Service has assigned a B2 senior unsecured rating to
the proposed USD notes to be issued by Kaisa Group Holdings Ltd (B1 stable).
The rating outlook is stable.
Kaisa plans to use the proceeds of the notes to refinance the existing
medium to long term offshore indebtedness which will become due within
one year.
RATINGS RATIONALE
"The proposed bond issuance will lengthen Kaisa's debt maturity profile
and will not have a material impact on its credit metrics, because
the proceeds will be used mainly to refinance existing debt," says
Danny Chan, a Moody's Assistant Vice President and Analyst,
and also Moody's Lead Analyst for Kaisa.
Kaisa continued to report strong 37% year-on-year
contracted sales growth (together with its joint ventures and associates)
to RMB34.7 billion in 1H 2019, compared to RMB22.5
billion in the corresponding period in 2018. Its attributable contracted
sales grew by 57% and 50% in 2018 and 2017, respectively.
Supported by such robust contracted sales, Moody's expects Kaisa's
revenue to continue growing strongly over the next one to two years.
As a result, its revenue/adjusted debt will rise to around 51%
and 63% in 2019 and 2020 respectively, from 36% in
2018.
Likewise, its adjusted EBIT/interest coverage should improve to
2.1x in 2019 and 2.5x in 2020 from 1.7x in 2018.
These credit metrics combined with the scale of its attributable contracted
sales — which totaled RMB70 billion in 2018 — position the
company's CFR at the B1 rating level.
Kaisa's liquidity is good. Its cash holdings of RMB22.3
billion at 31 December 2018 were sufficient to cover its short-term
debt of RMB17.0 billion. Moody's expects that Kaisa's cash
holdings and operating cash flow will be sufficient to cover its maturing
and puttable debt, including both USD300 million senior notes and
HKD1.2 billion senior notes maturing in December 2019 respectively
and committed capital spending over the next 12 months.
Kaisa's B1 corporate family rating (CFR) reflects its strong sales execution
in the Guangdong-Hong Kong-Macao Bay Area, established
track record with high-margin urban redevelopment projects,
and good quality land banks in high-tier cities such as Shenzhen.
However, the rating is constrained by its moderate financial metrics,
history of debt restructuring and share suspension, and high financing
costs.
The proposed notes will not have a material impact on the company's credit
metrics, because Kaisa will use the proceeds to refinance existing
debt.
The B2 senior unsecured ratings are one notch lower than the CFR due to
the risk of structural subordination. This risk refers to the facts
that the majority of Kaisa's claims are at its operating subsidiaries
and have priority over claims at the holding company in a bankruptcy scenario
and that the holding company lacks significant mitigating factors for
structural subordination.
The stable outlook reflects Moody's expectation that Kaisa will maintain
its sales growth in high-tier cities, high profit margins
and good liquidity. The outlook also incorporates Moody's expectation
that the company will expand its access to funding over the next 12-18
months.
Moody's could upgrade Kaisa if the company (1) maintains its good liquidity
position; (2) diversifies its funding channels; and (3) improves
its adjusted EBIT/interest coverage to above 3.0x-3.5x
and revenue/adjusted debt to above 75%-80% on a sustained
basis.
On the other hand, downward ratings pressure could emerge if the
company fails to achieve sales growth, or aggressively acquires
land beyond Moody's expectation, such that its financial metrics
and liquidity deteriorate.
Credit metrics that could trigger a rating downgrade include (1) revenue/adjusted
debt below 50% on a sustained basis; (2) adjusted EBIT/interest
coverage below 2.0x on a sustained basis; or (3) cash to short-term
debt below 1.0x-1.5x.
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.
Kaisa Group Holdings Ltd engages in real estate development in China,
mainly in urban redevelopment projects in the Greater Bay Area.
At 31 December 2018, it had an aggregate gross floor area of 24
million square meters of saleable resources across 45 cities in China.
Kaisa is also engaged in property management and non-property related
businesses. At 31 December 2018, Kaisa was 39%-owned
by its founder, Mr. Kwok Ying Shing and his family members,
and 25% owned by Funde Sino Life Insurance Co., Ltd
respectively.
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
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to rated entity, Disclosure from rated entity.
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The first name below is the lead rating analyst for this Credit Rating
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this Credit Rating.
Danny Chan
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Hong Kong
China (Hong Kong S.A.R.)
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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
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Moody's Investors Service Hong Kong Ltd.
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