Hong Kong, November 05, 2020 -- Moody's Investors Service has assigned a B3 rating to Jingrui Holdings
Limited (B2 stable) proposed senior unsecured USD notes.
Jingrui plans to use the proceeds from the proposed notes to refinance
existing debt.
RATINGS RATIONALE
"Jingrui's B2 corporate family rating (CFR) reflects the company's
long track record of developing residential properties in the Yangtze
River Delta region, high quality land bank and adequate liquidity,"
says Cedric Lai, a Moody's Vice President and Senior Analyst.
"However, the company's credit profile is constrained
by modest operating scale, high geographic concentration,
and moderate interest coverage due to its improving but still low profitability,"
adds Lai.
The proposed issuance will improve Jingrui's liquidity profile and not
materially affect its credit metrics, because the company will use
the proceeds to refinance existing debt.
Moody's expects Jingrui's debt leverage, as measured by revenue/adjusted
debt, will moderate to around 60% over the next 12-18
months from 64% for the 12 months ended June 2020, driven
by an expected increase in debt to replenish its land bank over the same
period.
At the same time, Moody's expects the company's interest coverage,
as measured by adjusted EBIT/adjusted interest expenses, will trend
towards 2.0x-2.2x over the next 12-18 months
from 1.9x for the 12 months ended June 2020, as the expected
improving gross margin from the top-tier cities projects will more
than offset the growth in interest expenses over the same period.
Jingrui's total contracted sales grew 7.7% to RMB18.9
billion for the first ten months of 2020 compared with last year.
Moody's expects its contracted sales to reach about RMB27 billion in the
next 12-18 months, supported by its sufficient saleable resources,
solid housing demand in its core markets, and recovering economic
activity in China.
The B3 senior unsecured debt rating is one notch lower than its 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.
Jingrui's liquidity position is adequate. Its cash holdings of
RMB12.0 billion as of 30 June 2020, which could cover 1.4x
of its short-term debt as of the same date. Moody's expects
the company's cash holdings, together with expected operating cash
flow, will be able to cover its committed land purchases,
dividend payments, as well as capital spending and payables for
its previous acquisitions, over the next 12-18 months.
In terms of environmental, social and governance (ESG) factors,
Moody's has taken into account the concentrated ownership by Jingrui's
key shareholders, Mr. Chen Xin Ge and Mr. Yan Hao,
who held an approximate 69.3% stake in the company as of
the end of June 2020.
Moody's has also considered (1) the fact that independent directors chair
Jingrui's audit and remuneration committees; (2) the low level of
related-party transactions and dividend payouts; and (3) the
presence of other internal governance structures and standards as required
by the Hong Kong Stock Exchange, on which the company is listed.
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 stable outlook reflects Moody's expectation that Jingrui will sustain
its improved sales execution for properties in higher-tier cities
in China and maintain adequate liquidity 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 its cash/short-term debt falls below 100%;
and (2) profit margins come under pressure, constraining its interest
coverage and financial flexibility, such that its EBIT interest
coverage falls below 2.0x 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.
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 2020, Jingrui had a total land bank
of about 4.92 million square meters, located across 21 cities
in China, including Beijing, Shanghai, Tianjin,
Hangzhou, Suzhou, Nanjing and Ningbo.
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.
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Cedric Lai
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Franco Leung
Associate Managing Director
Corporate Finance Group
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Client Service: 852 3551 3077
Clement Cheuk Yiu Wong
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
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Moody's Investors Service Hong Kong Ltd.
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