Hong Kong, May 11, 2021 -- 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 positive).
The rating outlook is positive.
Jiayuan will use the proceeds from the notes to refinance its 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 Kelly Chen, a Moody's Assistant Vice President
and Analyst.
"On the other hand, the B2 CFR is constrained by (1) Jiayuan's developing
operating scale, (2) the financial risks associated with its debt-funded
business growth, and (3) its narrow but improving funding access,"
adds Chen.
The proposed notes will improve Jiayuan's liquidity and debt maturity
profile without substantially impacting its credit metrics, because
the company will mainly use the proceeds to refinance its existing debt.
Moody's expects Jiayuan's revenue/adjusted debt will improve to 83%-92%
over the next 12-18 months from 85.8% in 2020,
as revenue growth from strong pre-sales over the past two years
will outpace debt growth.
Meanwhile, the company's adjusted EBIT/interest will remain strong
at 3.2x-3.6x from 3.1x over the same period,
because an expected decline in gross margin will be offset by ongoing
improvements in debt structure as the company refinances trust loans with
low-cost bank borrowings.
Moody's expects that Jiayuan's contracted sales will grow to around RMB40
billion over the next 12-18 months from RMB30.8 billion
in 2020, considering its sufficient salable resources and solid
housing demand in its core markets. The company's contracted sales
grew 7% to RMB30.8 billion in 2020 and 43% in 2019.
Jiayuan's senior unsecured rating of B3 is one notch below its B2 CFR
because of legal and structural subordination risk. Most of the
claims are at the operating subsidiaries and in the event of a bankruptcy,
they have priority over claims at the holding company. 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 low.
Jiayuan's liquidity is adequate. Its cash holdings of RMB10.9
billion at the end of December 2020 covered 155% of its short-term
debt. Moody's expects the company's cash holdings, together
with its projected operating cash flow, will enable the company
to meet its refinancing needs over the next 12 months.
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 and pledged around 10.1%
of the company's total outstanding shares for financing as of 31 March
2020.
Moody's has also considered the company's listed status on the Hong
Kong Stock Exchange and the application of the Hong Kong Listing Rules
and Securities and Future Ordinance on the company. In addition,
Mr. Shum has demonstrated his commitment to the company by injecting
assets to strengthen its operations and equity base, and reducing
his share pledge loan to lower the risk of a change in control.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The positive rating outlook reflects Moody's expectation that Jiayuan
will grow its operating scale without impeding profitability, maintain
strong credit metrics and improve its capital structure over the next
12-18 months.
Moody's could upgrade the ratings if Jiayuan (1) demonstrates sustainable
growth in its contracted sales and revenue without impeding profitability,
(2) strengthens its credit metrics, with adjusted revenue/debt above
70% and EBIT/interest higher than 3.0x on a sustained basis,
(3) further diversifies its funding channels, and (4) maintains
its change control risk at a low level.
A rating downgrade is unlikely, given the positive outlook.
However, the outlook on the ratings could return to stable if the
company records weaker growth in its contracted sales or revenue than
Moody's expectation, or if the company's credit metrics weakens,
such that (1) EBIT interest coverage trends toward 2.5x; (2)
revenue/adjusted debt falls below 65%; (3) liquidity weakens,
with its cash holdings slipping below 1.5x of short-term
debt; (4) funding channels narrow, or (5) risk of change in
control increases.
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 17.7 million square meters at the end
of December 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
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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy for Designating
and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
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.
Moody's general principles for assessing environmental, social and
governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
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
Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main
60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's office
that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed by
Moody's Investors Service Limited, One Canada Square, Canary
Wharf, London E14 5FA under the law applicable to credit rating
agencies in the UK. Further information on the UK endorsement status
and on the Moody's office that issued the credit rating is available on
www.moodys.com.
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.
Chen Chen
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
