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Rating Action:

Moody's assigns B3 to Jingrui Holdings' proposed USD notes

04 Mar 2020

Hong Kong, March 04, 2020 -- Moody's Investors Service has assigned a B3 rating to Jingrui Holdings Limited's (B2 stable) proposed senior unsecured USD notes.

Jingrui plans to use the proceeds from the proposed notes to refinance existing debt.

RATINGS RATIONALE

"The proposed bond issuance will lengthen Jingrui's debt maturity profile and improve its liquidity profile, without a material impact on the company's credit metrics," says Cedric Lai, a Moody's Vice President and Senior Analyst.

Moody's expects Jingrui's leverage, as measured by revenue/adjusted debt, will trend toward 64%-66% over the next 12-18 months from 52% for the 12 months ended June 2019. This improvement will be supported by increasing revenue growth as it recognizes solid contracted sales of the past two years, while debt growth will slow over the same period.

Similarly, Moody's expects adjusted EBIT/interest coverage will slightly improve to 2.0x-2.1x over the next 12-18 months from 1.7x for the 12 months ended June 2019, as strong revenue recognition and an improving gross margin will fully offset rising funding costs.

Jingrui's contracted sales fell 38.0% year-on-year to RMB866 million in the first two months of 2020, due to the impact of the Chinese New Year festival and the outbreak of the coronavirus. Although the company's sales are likely to stay weak in 1Q 2020 because of the outbreak, Moody's expects sales will recover through the remainder of 2020, keeping total contracted sales at a level similar to that achieved in 2019. Moody's will continue to monitor developments and evaluate the credit impact if the disruption is prolonged.

Jingrui's B2 corporate family rating reflects its modest scale, moderate financial profile and low but improving profitability. The rating also takes into account the company's track record of developing properties in Shanghai and other cities in the economically strong Yangtze River Delta area.

However, the CFR is constrained by the company's small scale and relatively high geographic concentration in the Yangtze River Delta.

In terms of governance consideration, Moody's has taken into account the concentrated ownership by Jingrui's founder and key shareholder, Mr. Yan Hao, who held about 38% stake in Jingrui as of 30 June 2019.

Such concentrated ownership is mitigated by the presence of three special committees, the audit committee, the remuneration committee and the nomination committee, two of which are dominated and chaired by the independent non-executive directors.

Additionally, the company has established internal governance structures and standards as required under the Corporate Governance Code for companies listed on the Hong Kong Stock Exchange.

Jingrui's liquidity position is adequate. Moody's expects the company's cash balance and cash flow from operating activities will be sufficient to cover its committed land payments and maturing debt over the next 12-18 months. As of June 2019, the company's cash balance of RMB14.2 billion covered about 1.4x its maturing debt of RMB10.4 billion as of the same date.

Jingrui's B3 senior unsecured debt rating is one notch lower than the CFR due to structural subordination risk. This risk reflects the fact that the majority of claims are at the operating subsidiaries and have priority over Jingrui's senior unsecured claims 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.

The stable ratings outlook reflects Moody's expectation that Jingrui's will sustain its improved sales execution for properties in higher-tier cities in China over the next 12-18 months.

Moody's could upgrade the ratings if Jingrui substantially grows its scale while maintaining (1) sound credit metrics, with adjusted revenue/debt above 95%-100%, and EBIT/interest coverage above 3.5x on a sustained basis; and (2) an adequate liquidity position on a sustained basis.

Moody's could downgrade the ratings if Jingrui's (1) liquidity weakens, such that cash/short-term debt falls below 100%; and (2) profit margins come under pressure, constraining its interest coverage and financial flexibility, such that EBIT interest coverage falls below 2.0x.

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.

Jingrui Holdings Limited is a Shanghai-based property developer. The company was listed on the Hong Kong Stock Exchange in October 2013. It was originally established in 1993 as Shanghai Jingrui Property Development Company by a group of businessmen, including its current key shareholders and executive directors, Mr. Chen Xin Ge and Mr. Yan Hao.

The company engages in property development, with a focus on residential projects in the Yangtze River Delta and other second-tier cities in China. As of June 2019, Jingrui's land bank of about 5.5 million square meters was spread across 13 cities in China, including Tianjin, Ningbo, Suzhou, Hangzhou, Wuhan and Shanghai.

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.

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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.

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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.

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

No Related Data.
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