Hong Kong, October 27, 2020 -- Moody's Investors Service has assigned a B3 senior unsecured rating to
the proposed USD notes to be issued by Jiayuan International Group Limited
(B2 stable).
The rating outlook is stable.
Jiayuan will use the proceeds from the note issuance to refinance existing
debt.
RATINGS RATIONALE
"Jiayuan's B2 corporate family rating (CFR) reflects (1) the company's
track record in its core markets in the Yangtze River Delta, underpinned
by its strong sales execution; and (2) its low cost and quality land
bank," says Danny Chan, a Moody's Assistant Vice President
and Analyst.
"On the other hand, the B2 CFR is constrained by (1) Jiayuan's small
operating scale, (2) moderate geographic diversification,
and (3) the financial risks associated with its debt-funded business
growth," adds Chan.
The proposed notes will improve Jiayuan's liquidity and debt maturity
profile without substantially impacting its credit metrics, because
it will mainly use the proceeds to refinance existing debt.
Moody's expects Jiayuan's revenue/adjusted debt will weaken slightly to
83%-87% over the next 12-18 months from 91.4%
for the 12 months ended 30 June 2020, as revenue growth from strong
pre-sales in the past two years will be offset by debt growth to
replenish its land bank. Such a level of leverage still solidly
positions the company at its B2 rating.
Meanwhile, the company's adjusted EBIT/interest will also
weaken slightly to 2.9x-3.3x from 3.4x over
the same period, driven by the rising interest expenses on the back
of rising debt.
Moody's expects that Jiayuan's contracted sales will grow to RMB35 billion-RMB40
billion over the next 12-18 months from RMB32 billion for the 12
months ended 30 June 2020, considering its sufficient salable resources
and the solid housing demand in its core markets. In the first
nine months of 2020, the company's contracted sales grew 9%
to RMB19.8 billion.
Jiayuan's senior unsecured rating of B3 is one notch below its B2 CFR,
reflecting legal and structural subordination risk. This risk reflects
the fact that most of the claims are at the 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.
In terms of environmental, social, and governance (ESG) factors,
Moody's has considered the risks associated with the concentration of
the company's ownership in Mr. Shum Tin Ching, who held a
69.7% stake in Jiayuan as of 31 July 2020, and Mr.
Shum's share pledge financing.
Given the company's listed status, Jiayuan is subject to the Hong
Kong Listing Rules and Securities and Future Ordinance. In addition,
Mr. Shum has demonstrated his commitment to the company by injecting
assets to strengthen Jiayuan's operations and equity base, and reducing
his share pledge loan to lower the risk of a change in control.
Jiayuan's liquidity is adequate. Its cash holdings of RMB9.1
billion at the end of June 2020 covered 114% of its short-term
debt. Moody's expects the company's cash holdings,
together with its contracted sales proceeds after deducting basic operating
cash flow items, will enable the company to meet its refinancing
needs over the next 12 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The stable outlook reflects Moody's expectation that (1) the company's
liquidity will remain adequate, with continued access to the onshore
and offshore loan and debt capital markets; and (2) the company will
grow its contracted sales and maintain cash collections as planned over
the next 12-18 months.
Moody's could upgrade the ratings if Jiayuan (1) grows its business while
improving its credit metrics, with adjusted revenue/debt above 70%
and EBIT/interest above 3.0x on a sustained basis; (2) maintains
adequate liquidity, with cash/short-term debt consistently
above 1.5x; and (3) keeps the risk of a change of control
at a low level.
Moody's could downgrade the ratings if Jiayuan's (1) liquidity profile
weakens; (2) risk of a change in control increases; or (3) contracted
sales or revenue prove weaker than Moody's had expected, leading
to a deterioration in the company's credit metrics.
Credit metrics indicative of a downgrade include adjusted revenue/debt
below 55%, EBIT/interest below 2.0x, or cash/short-term
debt below 1.0x, all on a sustained basis.
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.
Jiayuan International Group Limited develops mass-market residential
properties mainly in Jiangsu and Anhui provinces. The company had
a total land bank of around 17 million square meters at the end of June
2020. It also develops and operates commercial properties alongside
its residential property projects.
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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governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed by
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60322, Germany, in accordance with Art.4 paragraph
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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.
Danny Chan
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
