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
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and whose ratings may change as a result of this credit rating action,
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to rated entity, Disclosure from rated entity.
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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.
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
