Hong Kong, February 18, 2020 -- Moody's Investors Service has assigned a B2 senior unsecured rating
to the proposed USD notes to be issued by Yango Justice International
Limited and guaranteed by Yango Group Co., Ltd (Yango,
B1 stable).
Yango plans to use the bond proceeds mainly to refinance existing offshore
debt.
RATINGS RATIONALE
"The proposed bond issuance, if completed as planned, will
have limited impact on Yango's credit metrics, as the company will
mainly use the proceed to refinance existing debt," says Celine
Yang, a Moody's Assistant Vice President and Analyst.
Moody's expects that Yango's debt leverage — as measured by revenue/adjusted
debt — will trend towards 60%-70% over the
next 12-18 months from 50% for the 12 months ended 30 June
2019, driven by expected revenue growth. Meanwhile,
its interest coverage -- as measured by adjusted EBIT/interest
-- will improve to around 2.5x-3.0x
from 2.3x over the same period, because of the expected revenue
growth and the company's stable profit margins.
The company's strong revenue growth is a result of its fast contracted
sales growth in the past one to two years. Its contracted sales
grew 30% year-on-year to RMB211 billion in 2019 and
78% year-on-year to RMB163 billion in 2018.
Yango's contracted sales fell 14.0% to RMB10.1
billion in January 2020 from RMB11.8 billion in January 2019,
due to the impact of the Chinese New Year festival and the outbreak of
the coronavirus. Although its sales are likely to stay weak in
1Q 2020 because of the outbreak, Moody's expects sales will
recover through the remainder of 2020, keeping total contracted
sales at a level similar to that achieved in 2019. However,
Moody's will continue to monitor the development and evaluate the credit
impact if the disruption is prolonged.
The B1 corporate family rating (CFR) reflects the company's possession
of a good-quality and geographically diversified land bank,
large-scale operation and strong sales execution.
On the other hand, Yango's B1 CFR is constrained by the company's
improving but still high debt leverage, accumulated through its
sizable land acquisitions to support the company's rapid growth and expansion
strategy.
In terms of governance risk, Moody's has taken into account the
company's concentrated ownership by Fujian Yango Group Co.,
Ltd and its person acting in concert, who together owned 44.5%
of Yango as of 2 January 2020, with 90.85% of these
shares are pledged.
This risk is partially mitigated by (1) the presence of four independent
directors on Yango's 11-member board of directors; (2) the
presence of an audit committee, remuneration committee, nomination
committee and strategic committee to provide corporate governance oversight;
(3) the company's disclosure of material related-party transactions
as required by the relevant code for companies listed on the Shenzhen
Stock Exchange; and (4) the company's low dividend payouts,
ranging from 7.52% to 16.46% of net profits
during 2013-2019.
Yango's liquidity profile is good. Moody's expects the company's
cash holdings, together with its cash flow generated from operating
activities, will be sufficient to cover its maturing debt,
including onshore puttable bonds of RMB6.4 billion, and its
committed land payments over the next 12-18 months.
The B2 senior unsecured rating for Yango's guaranteed bonds is one
notch lower than Yango's CFR to reflect the risk of structural subordination.
This subordination risk considers the fact that the majority of its 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.
Yango's stable outlook reflects Moody's expectation that over the
next 12-18 months Yango will (1) execute its sales plan; (2)
remain disciplined in land acquisitions and improve its leverage;
and (3) maintain good liquidity.
Moody's could upgrade Yango's ratings if the company (1) remains disciplined
in its land acquisitions and financial management; (2) continues
to improve its funding channels and maintains good liquidity; (3)
improves its debt leverage while maintaining contracted sales growth.
Credit metrics that would indicate a possible upgrade include (1) revenue/adjusted
debt rising above 70%-80%; and (2) adjusted
EBIT/interest staying above 3.0x.
Moody's could downgrade Yango's ratings if (1) it generates weak contracted
sales; (2) its profit margin declines materially; (3) its liquidity
weakens, such that cash/short-term debt falls below 1.0x;
and/or (4) its debt leverage or exposure to trust financing rises materially.
Credit metrics indicative of a rating downgrade include its EBIT/interest
coverage falling below 2.0x and/or adjusted revenue/debt falling
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.
Founded in 1995 in Fuzhou, Yango Group Co., Ltd is
a Chinese property developer that focuses on the Greater Fujian and Yangtze
River Delta regions. The company was listed on the Shenzhen Stock
Exchange in 2002. Yango's operations are mainly focused on mass-market
residential property development. The company had a total land
bank of around 44 million sqm at 30 June 2019.
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
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the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
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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.
YuYing (Celine) Yang
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
