Hong Kong, July 08, 2020 -- 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).
Kaisa plans to use the notes' proceeds to refinance its existing medium
to long-term offshore debt due within one year.
RATINGS RATIONALE
"The proposed bond issuance will improve Kaisa's liquidity position and
lengthen its debt maturity profile without a material impact on its credit
metrics, given that the company will use the proceeds to refinance
existing debt," says Danny Chan, a Moody's Assistant Vice
President and Analyst.
Moody's expects Kaisa to maintain healthy revenue growth in the next one
to two years, driven by its robust contracted sales registered in
the past two years, while its debt growth is likely to slow on the
back of controlled land acquisitions and increasing urban redevelopment
projects conversion.
As a result, the company's revenue/adjusted debt will improve
gradually to 50%-55% over the next 12-18 months
from 42% in 2019. Its adjusted EBIT/interest coverage will
also improve to 2.0x-2.5x from 1.8x over the
same period, supported by continuous revenue growth and an improving
gross margin.
Kaisa's total contracted sales reached about RMB36.0 billion
for the first six months of 2020, representing a slight growth of
3.8% when compared to the corresponding period in 2019.
Moody's expects the company's sales to grow slightly in the
next 12-18 months with the support of its strong brand name,
quality saleable resources and stable economic growth in its core markets.
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, and its good-quality
land bank in high-tier cities such as Shenzhen.
On the other hand, the rating is constrained by the company's
moderate credit metrics and history of debt restructuring.
Kaisa's liquidity profile is adequate. Moody's expects Kaisa's
cash holdings together with its operating cash flow will be sufficient
to cover its maturing and committed land payments over the next 12-18
months.
The company's cash holdings of RMB32.8 billion (including
restricted cash of RMB6.0 billion) were sufficient to cover its
short-term debt of RMB31.9 billion as of December 2019.
Kaisa's B2 senior unsecured rating is one notch lower than the company's
B1 corporate family rating due to structural subordination risk.
This risk reflects the fact 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. 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.
Kaisa's stable outlook reflects Moody's expectation that the company will
maintain healthy contracted sales growth and adequate liquidity over the
next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Kaisa's rating could be upgraded if the company (1) maintains its
adequate 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, Moody's could downgrade the rating 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 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 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 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.
Kaisa Group Holdings Ltd engages in real estate development in China,
including urban redevelopment projects in the Greater Bay Area.
At 31 December 2019, the company's land bank comprised an aggregate
gross floor area of 26.8 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 April 2020, Kaisa was 39.25%
owned by its founder, Mr. Kwok Ying Shing and his family
members.
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
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For any affected securities or rated entities receiving direct credit
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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Regulatory disclosures contained in this press release apply to the credit
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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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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
