Hong Kong, October 15, 2019 -- Moody's Investors Service ("Moody's") has assigned a B2 senior unsecured
rating to the proposed USD notes to be issued by Kaisa Group Holdings
Ltd ("Kaisa") (B1 stable).
The rating outlook is stable.
Kaisa plans to use the proceeds of the notes to refinance its existing
medium-term and long-term offshore debt becoming due within
one year.
RATINGS RATIONALE
"The proposed bond issuance will lengthen Kaisa's debt maturity
profile and support its liquidity profile without generating a material
impact on its credit metrics, because the company will mainly use
the proceeds to refinance existing debt," says Danny Chan,
a Moody's Assistant Vice President and Analyst, and also Moody's
Lead Analyst for Kaisa.
Kaisa reported strong 33.5% year-on-year contracted
sales growth (together with its joint ventures and associates) to RMB55.1
billion for the first nine months of 2019, from RMB41.3 billion
for the corresponding period a year earlier.
Supported by such robust contracted sales, Moody's expects Kaisa's
revenue to continue growing strongly over the next 12-18 months.
As a result, the company's revenue/adjusted debt should improve
to 60%-65% by 2020 from a weak 38% in the
12 months ended June 2019.
Likewise, the company's adjusted EBIT/interest coverage should
trend towards 2.5x from 1.9x over the same period.
Kaisa's liquidity profile is good. Moody's expects that Kaisa's
cash holdings along with its operating cash flow will be sufficient to
cover its maturing and committed land payments over the next 12-18
months. As of June 2019, the company's cash holdings
of RMB28 billion could cover about 1.2x of its RMB22.6 billion
short-term debt.
Kaisa's B1 corporate family rating (CFR) reflects its strong brand and
sales execution in the Guangdong-Hong Kong-Macao Bay Area
(the Greater Bay Area), its established track record of completing
high-margin urban redevelopment projects, its good quality
land bank in high-tier cities such as Shenzhen, and its good
liquidity.
However, the rating is constrained by its high debt leverage and
track record of debt restructuring.
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 contracted sales growth and good liquidity over the next 12-18
months.
Moody's could upgrade Kaisa if the company (1) maintains its good liquidity;
(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 falling below 50%; (2) adjusted EBIT/interest coverage
falling below 2.0x; or (3) cash to short-term debt
falling below at 1.0x-1.5x 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.
Kaisa Group Holdings Ltd engages in real estate development in China,
including urban redevelopment projects in the Greater Bay Area.
As of 30 June 2019, the company's land bank comprised an aggregate
gross floor area of 25.8 million square meters of saleable resources
across 47 cities in China.
Kaisa is also engaged in property management and non-property related
businesses. As of June 2019, Kaisa was 39.4%
owned by its founder, Mr. Kwok Ying Shing and his family
members.
REGULATORY DISCLOSURES
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
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.
Danny Chan
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
