Hong Kong, September 23, 2020 -- Moody's Investors Service has assigned a B2 senior unsecured rating to
the senior perpetual securities to be issued by Kaisa Group Holdings Ltd
(B1 stable).
The perpetual securities will rank pari passu with all of its other present
and future unsecured and unsubordinated obligations.
Kaisa plans to use the proceeds from the proposed issuance to refinance
its medium to long-term offshore debt coming due within one year.
RATINGS RATIONALE
"Kaisa's B1 corporate family rating (CFR) reflects the company's
(1) strong brand and sales execution in the Guangdong-Hong Kong-Macao
Bay Area (the Greater Bay Area); (2) established track record of
completing high-margin urban redevelopment projects; and (3)
good-quality land bank in high-tier cities such as Shenzhen,"
says Danny Chan, a Moody's Assistant Vice President and Analyst.
"However, the rating is constrained by the company's improving
but still moderate credit metrics, narrowed funding channels and
the resulting high financing costs," adds Chan.
Kaisa's B2 senior unsecured rating is one notch lower than the company's
B1 CFR 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.
The B2 senior unsecured rating for the proposed perpetual securities also
considers (1) Moody's treatment of the proposed perpetual securities as
pure debt instruments, meaning it does not apply any equity treatment
to these securities; (2) the fact that the securities will rank pari
passu with all of Kaisa's other present and future senior obligations.
Moody's notes that the perpetual securities will provide Kaisa with
the option to defer coupons on a cumulative basis. The rating on
the perpetual securities could be lowered—relative to the company's
senior unsecured rating—if Moody's expects the company will defer
many payments in advance of default.
The proposed issuance will improve Kaisa's liquidity position and lengthen
its debt maturity profile without a material impact on its credit metrics,
because the company plans to use the proceeds to refinance existing debt.
Moody's expects Kaisa's revenue/adjusted debt to improve to about
55%-60% over the next 12-18 months from 43%
for the 12 months ended June 2020 on the back of controlled debt growth
and increased revenue, which is in turn supported by the company's
robust contracted sales growth.
Likewise, Kaisa's EBIT/interest coverage should improve to
2.0x-2.5x from 1.8x over the same period.
Kaisa's total contracted sales grew 24% year-over-year
for the first eight months of 2020, reaching about RMB55 billion.
Moody's expects the company's sales growth to remain strong 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 -
Shenzhen and other cities in the Greater Bay Area.
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 RMB37.6 billion (including restricted
cash of RMB5.5 billion) as of June 2020 were sufficient to cover
its short-term debt of RMB31.6 billion as of the same date.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
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.
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 30 June 2020, 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 August 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
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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy for Designating
and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
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.
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.
Further information on the EU endorsement status and on the Moody's office
that issued the credit rating is available on www.moodys.com.
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
