Hong Kong, April 17, 2019 -- Moody's Investors Service has assigned a B2 rating to Ronshine China Holdings
Limited's (B1 stable) proposed senior unsecured USD notes.
Ronshine plans to use the proceeds from the proposed notes to refinance
existing debt.
RATINGS RATIONALE
"The proposed bond issuance will lengthen Ronshine's debt maturity
profile and will not have a material impact on its credit metrics,
because the proceeds will be used for refinancing," says Cedric
Lai, a Moody's Vice President and Senior Analyst.
Moody's forecasts that Ronshine's debt leverage — as measured by
revenue/adjusted debt — will trend towards 60%-65%
over the next 12-18 months from 52% in 2018, and its
interest coverage — as measured by adjusted EBIT/ interest —
will improve to 2.5x-3.0x from around 2.1x
over the same period.
Ronshine's total contracted sales grew 13.4% year-on-year
to RMB25.5 billion in the first quarter of 2019, after recording
robust 73% year-on-year growth to RMB121.9
billion for the full year of 2018. These strong contracted sales
should support the company's revenue growth over the next 12-18
months.
The company's liquidity is adequate. Its cash balance of RMB 25.0
billion as of end of December 2018 was sufficient to cover its short-term
debt of 24.8 billion, and Moody's expects that its
cash holdings, together with the proceeds from its contracted sales
after deducting basic operating cash flow items, will cover its
maturing debt, committed land premiums, and dividend payments
over the next 12 months.
Ronshine's B1 CFR continues to reflect its fast growing scale and its
track record of developing properties in the Yangtze River Delta region
and Fujian Province. The B1 CFR also takes into account the company's
adequate liquidity, strong market position and strong ability on
sales execution in its key markets, including Hangzhou, Shanghai
and Fuzhou.
On the other hand, the rating is constrained by its high debt leverage,
which results from the company's rapid expansion strategy.
Ronshine's B2 senior unsecured rating is one notch lower than its CFR
to reflect the risk of structural subordination. This subordination
risk reflects the fact that the majority of Ronshine'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 expected recovery rate for claims at the holding
company will be lower.
The stable outlook reflects our expectation that Ronshine can execute
its sales plan, remain prudent in its land acquisitions and maintain
adequate liquidity, while posting improved credit metrics over the
next 12-18 months.
Ronshine's rating could be upgraded if the company (1) demonstrates sustained
growth in its contracted sales and revenue through economic cycles without
sacrificing its profitability; (2) remains prudent in its land acquisitions
and financial management; (3) improves its credit metrics,
such that EBIT/interest registers at least 3.0x and revenue/adjusted
debt rises to 75%-80% or above on a sustained basis;
and (4) maintains adequate liquidity.
On the other hand, the company's ratings could come under downward
pressure if Ronshine: (1) generates a weak level of contracted sales;
(2) suffers from a material decline in its profit margins; (3) experiences
an impairment of its liquidity position, such that cash/short-term
debt falls below 1.0x; and/or (4) materially increases its
debt leverage.
Credit metrics indicative of a ratings downgrade include EBIT/interest
coverage below 2.0x, and/or adjusted revenue/debt below 50%-55%
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.
Ronshine China Holdings Limited was incorporated in the Cayman Islands
in 2014 and listed on the Hong Kong Stock Exchange in January 2016.
As a property developer, it focuses on mid-to high-end
residential units in Fujian Province, the Yangtze River Delta,
the Pearl River Delta, Central China and the Bohai Sea Region.
The company was founded by its Chairman, Mr. Ou Zonghong,
who owns 62.3% of Ronshine as of 17 April 2019.
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
rating in a manner that would have affected the rating. For further
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respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
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and whose ratings may change as a result of this credit rating action,
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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
and the last name below is the person primarily responsible for approving
this Credit Rating.
Cedric Lai
Vice President - Senior 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
