Hong Kong, September 02, 2019 -- Moody's Investors Service has assigned a B2 rating to Zhongliang
Holdings Group Company Limited's proposed senior unsecured USD notes.
The rating outlook is stable.
Zhongliang plans to use the proceeds from the proposed notes for refinancing.
RATINGS RATIONALE
"The proposed bond issuance will not materially change Zhongliang's credit
metrics in the next 12 to 18 months, and will help address its short-term
refinancing needs," says Cedric Lai, a Moody's Vice President
and Senior Analyst.
Moody's expects that Zhongliang's adjusted EBIT/interest will be maintained
at 2.6x over the next 12-18 months, compared to 2.7x
for the 12 months to June 2019, and that its debt leverage —
as measured by revenue/adjusted debt — will gradually normalize
towards 75%-85% from 111% over the same period.
Zhongliang's B1 CFR reflects the company's strong brand name in
second-tier and lower-tier cities in the Yangtze River Delta
region, and good track record of contracted sales growth.
Underpinned by strong housing demand in lower-tier cities over
the past two years and strong sales execution, Zhongliang recorded
year-over-year 26.8% growth in contracted
sales to RMB63.7 billion in 1H 2019. The company's contracted
sales rose 56% year-on-year to RMB101.5 billion
in 2018, following 242% year-on-year growth
in 2017.
However, Zhongliang's B1 CFR is constrained by the concentration
of its land bank in second-tier and lower-tier cities,
and by its reliance on expensive non-bank financing.
The B2 senior unsecured debt rating is one notch lower than Zhongliang's
corporate family rating due to structural subordination risk.
This subordination risk refers to the fact that the majority of Zhongliang'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 factors for structural subordination.
Consequently, the expected recovery rate for claims at the holding
company will be lower.
Zhongliang's liquidity position is good. The company's cash balance
of RMB24.7 billion at the end of June 2019 covered 171%
of its short-term debt. Such cash holdings, together
with the company's operating cash flow, should be sufficient to
cover its short-term debt and estimated committed land payments
over the next 12-18 months.
With respect to governance risks, Moody's has considered the risk
associated with the concentration of the company's ownership in its controlling
shareholders, Mr. Yang Jian and his spouse, who held
a 82.9% stake in the company at 30 August 2019.
The financial risk associated with this ownership concentration is partly
mitigated by (1) the presence of three independent non-executive
directors on a board of seven directors, and of two independent
non-executive directors who chair the audit and remuneration committees,
and (2) the application of the Listing Rules of the Hong Kong Stock Exchange
and the Securities and Futures Ordinance in Hong Kong.
The stable rating outlook reflects Moody's expectation that Zhongliang
will continue to grow its contracted sales, maintain its good liquidity
position, and remain prudent in its land acquisitions.
Moody's could upgrade the CFR if Zhongliang (1) achieves strong contracted
sales growth; (2) strengthens its financial profile, with revenue/adjusted
debt above 80% and EBIT/interest above 3.0x on a sustained
basis; (3) maintains its good liquidity position; and (4) reduces
its trust financing and borrowings from asset management companies.
Moody's could downgrade the CFR in case of a deterioration in Zhongliang's
contracted sales growth, liquidity position, or credit metrics.
Credit metrics that could trigger a rating downgrade include (1) revenue/adjusted
debt below 50%-55%; or (2) adjusted EBIT/interest
coverage below 2.0x, both 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.
Zhongliang Holdings Group Company Limited is a Shanghai-based residential
property developer. The company engages in real estate development
in China.
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
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the rated entity is participating and the rated entity or its agent(s)
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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
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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.
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
