Hong Kong, January 06, 2021 -- Moody's Investors Service has assigned a B3 senior unsecured rating to
the proposed USD notes to be issued by Redsun Properties Group Limited
(B2 positive).
The outlook is positive.
Redsun plans to use the proceeds from the proposed notes to refinance
its existing offshore debt.
RATINGS RATIONALE
"Redsun's B2 corporate family rating (CFR) reflects the company's long
operating history of developing mass-residential properties in
Jiangsu province, its high-quality land bank and its strong
sales execution, as demonstrated by its sales growth," says
Cedric Lai, a Moody's Vice President and Senior Analyst.
"Meanwhile, its rating is constrained by the company's limited but
developing funding channels, modest credit metrics and high exposure
to join-venture (JV) businesses which weakens corporate transparency,"
adds Lai.
The proposed bond issuance will lengthen Redsun's debt maturity profile
and improve its liquidity without having a material impact on its credit
profile, because the company will use the proceeds to refinance
maturing debt.
Moody's expects Redsun's debt leverage, as measured by revenue/adjusted
debt, will be 50%-55% in the next 12-18
months from 55% for the 12 months that ended June 2020 as debt
growth will likely offset revenue growth amid the company's debt-funded
business expansion. Similarly, Moody's forecasts Redsun's
EBIT interest coverage will be 1.6x-1.8x in the next
12-18 months from 1.8x for the 12 months that ended June
2020 and 1.6x in 2019.
Redsun's total contracted sales grew 28% to RMB74.3 billion
in the first 11 months of 2020 compared with the same period in 2019 despite
the impact from the coronavirus outbreak. Moody's believes Redsun's
solid market position in Jiangsu province and sufficient saleable resources
will enable the company to further grow its contracted sales to RMB85-90
billion in 2021.
Redsun's B3 senior unsecured debt rating is one notch lower than the company's
B2 CFR due to structural subordination risk. The subordination
risk refers to the fact that the majority of Redsun's claims are at its
operating subsidiaries and, in the event of a bankruptcy,
have priority over claims at the holding company. 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.
Redsun's liquidity is adequate. Moody's expects the company's cash
holdings and operating cash flow will be sufficient to cover its debt
maturities and committed land premiums in the next 12-18 months.
In terms of environmental, social and governance (ESG) considerations,
Moody's has taken into consideration Redsun's concentrated ownership
by its key shareholder, Zeng Huansha, who held a 72.29%
direct and indirect stake in the company as of the end of June 2020.
Moody's has also considered the presence of three independent nonexecutive
directors on the company's seven-member board of directors,
the fact that independent nonexecutive directors chair both the audit
and remuneration committees, and the presence of other internal
governance structures and standards as required under the Corporate Governance
Code for companies listed on the Hong Kong Stock Exchange.
Moody's regards the impact of the deteriorating global economic outlook
amid the rapid and widening spread of the coronavirus outbreak as a social
risk under its ESG framework, given the substantial implications
for public health and safety.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The positive outlook reflects Moody's expectation that Redsun will continue
to achieve strong contracted sales growth, maintain its credit metrics,
and improve its access to both offshore and onshore funding channels in
the next 12-18 months.
Redsun's rating could be upgraded if the company improves its debt leverage
and funding channels while maintaining its strong contracted sales growth.
Credit metrics indicative of a potential upgrade include debt leverage
rising above 55%, EBIT/interest coverage rising above 2.0x-2.25x
and cash/short-term debt rising above 1.25x, all on
a sustained basis.
Redsun's rating is unlikely to be downgraded in the near term because
of the positive outlook. However, the outlook could be revised
to stable if the company fails to improve its credit metrics or fails
to maintain adequate liquidity in the next 12-18 months.
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.
Founded in 1996, Redsun Properties Group Limited listed on the Hong
Kong Stock Exchange in July 2018. Its headquarters are in Shanghai
and Nanjing.
Redsun engages in real estate development, commercial properties
and hotel operations in China. At 30 June 2020, the company's
total saleable resources comprised a gross floor area of around 18.37
million square meters, with its footprint spread across 41 cities
in China.
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
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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
