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Rating Action:

Moody's assigns B2 to Kaisa's proposed USD notes

04 Nov 2019

Hong Kong, November 04, 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 outlook is stable.

Kaisa plans to use the proceeds of the notes to refinance its existing medium to long-term debt becoming due within one year.

RATINGS RATIONALE

"The proposed bond issuance will support Kaisa's liquidity and lengthen its debt maturity profile," says Danny Chan, a Moody's Assistant Vice President and Analyst. "The issuance will also not materially affect its credit metrics, because the company will use the majority of the proceeds to refinance existing debt."

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% for 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 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.

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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.

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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.

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

No Related Data.
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