Hong Kong, July 15, 2019 -- Moody's Investors Service has assigned a B3 rating to Fantasia Holdings
Group Co., Limited's (B2 stable) proposed senior unsecured
USD notes.
Fantasia plans to use the proceeds from the proposed notes to refinance
certain of its existing indebtedness.
RATINGS RATIONALE
"The proposed bond issuance will not materially change Fantasia's credit
metrics in the next 12 to 18 months, but will slightly improve its
maturity profile," says Celine Yang, a Moody's Assistant Vice
President and Analyst.
Moody's expects Fantasia's leverage -- as measured by revenue
to adjusted debt -- will trend towards 40% in the
next 12-18 months from 32% in 2018, largely driven
by an increase in revenue on the back of strong contracted sales growth
in the past one to two years. At the same time, Moody's estimates
EBIT/interest will improve towards 1.50x over the same period from
1.3x in 2018.
Moody's expect Fantasia will achieve total contracted sales of RMB33-35
billion in 2019, up about 10%-15% growth from
2018. The company achieved total contracted sales of RMB13.2
billion for the six months ended June 2019.
Fantasia's B2 corporate family rating reflects the company's (1) established
track record in property development in the Chengdu-Chongqing Economic
Zone and the Pearl River Delta; and (2) the diversified income streams
from its property management, rental and hotel management businesses,
which are mostly recurring in nature.
On the other hand, the B2 rating is constrained by the company's
high leverage and weak interest coverage, in turn caused by its
high-cost financing.
The B3 senior unsecured debt rating is one notch lower than the corporate
family rating due to structural subordination risk.
This subordination risk refers to the fact that the majority of Fantasia'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. Consequently, the expected recovery rate for
claims at the holding company will be lower.
Fantasia's liquidity is good. Moody's expects the company
cash balance, together with its operating cash flow, will
be sufficient to cover its maturing debt and committed land payments over
the next 12 months. As of December 2018, the company's
cash holdings of about RMB25 billion, after deducting cash held
by Colour Life, covered about 1.7x of its short term debt
of RMB14.6 billion as at the same date.
The stable ratings outlook reflects Moody's expectation that over the
next 12-18 months Fantasia will execute its sales plan and improve
its credit metrics while maintaining sufficient liquidity.
Fantasia's ratings could be upgraded if the company (1) improves its debt
maturity and liquidity profile; and (2) improves its credit metrics,
such that revenue/adjusted debt rises to 60%-70%
on a sustained basis, and EBIT/interest improves to 2.5x
or above.
The ratings could be downgraded if (1) its contracted sales or cash collections
weaken; (2) it engages in aggressive land acquisitions or other business
acquisitions, such that its debt leverage and liquidity deteriorate
materially; (3) refinancing and liquidity risks increase; or
(4) its credit metrics are unlikely to improve, with EBIT/interest
failing to trend towards 1.5x over the next 12-18 months.
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.
Fantasia Holdings Group Co., Limited is a property developer
in China (A1 stable). Established in 1996, the company listed
on the Hong Kong Stock Exchange in November 2009.
In addition to property development, Fantasia is engaged in providing
property operation services, property agency services and hotel
services for its own properties and properties of third parties.
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
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
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.
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
