Hong Kong, June 29, 2021 -- Moody's Investors Service has assigned a Ba1 senior unsecured rating to
the proposed USD notes to be issued by New Metro Global Limited and guaranteed
by Seazen Holdings Co., Ltd. (Seazen Holdings,
Ba1 stable).
New Metro is a wholly-owned subsidiary of Seazen Holdings,
which is a 67.2%-owned subsidiary of Seazen Group
Limited (Seazen Group, Ba1 stable).
Seazen Holdings plans to use the proceeds from the proposed notes to refinance
its medium to long term offshore debts that will become due within one
year.
RATINGS RATIONALE
"Seazen Holdings' Ba1 corporate family rating (CFR) reflects the company's
solid sales execution ability, sizable operating scale, growing
stream of recurring rental income and strong financial metrics as well
as good liquidity," says Kaven Tsang, a Moody's Senior
Vice President.
"Meanwhile, the company's Ba1 CFR is constrained by its exposure
to the regional economy of the Yangtze River Delta region and significant
exposure to joint ventures (JVs)," adds Tsang, Moody's
Lead Analyst for Seazen Holdings.
The proposed bond issuance will lengthen Seazen Holdings' debt maturity
profile and improve its liquidity position without having a material impact
on its credit metrics, because the company will use the proceeds
to refinance its maturing debts.
Moody's expects Seazen Holdings' debt leverage, as measured
by revenue/adjusted debt, to remain strong at around 130%
over the next one to two years when compared with 129% in 2020.
The improvement will be driven by the company's stable revenue growth,
resulting from its robust contracted sales over the past two to three
years.
Moody's also forecasts Seazen Holdings' EBIT/interest coverage
to be largely stable at 4.5x-5.0x over the next one
to two years, down slightly from 5.0x in 2020 because of
a likely slight decline in its gross profit margin. Moody's
expects the company's gross margin to edge down to around 21%
from 23% over the same period, reflecting increasing land
and operating costs.
Seazen Holdings' contracted sales grew a strong 37% to RMB94.6
billion for the first five months of 2021 largely due to the low base
in the corresponding period in 2020 caused by the coronavirus pandemic.
Moody's expects the company's contracted sales to grow mildly
at round 5% each year to around RMB260 billion in 2021 and around
RMB275 billion in 2022 as tightened onshore credit conditions and the
high base of comparison in the second half of 2020 will constrain growth.
Nevertheless, the company's solid sales execution ability
and robust housing demand in its core market, the Yangtze River
Delta region, will support its growth over the next one to two years.
There is no notching for the Ba1 senior unsecured bond rating of the notes
guaranteed by Seazen Holdings. Although most of the company's claims
are at the operating subsidiary level, its diversified business
profile — with cash flow generation across a large number of operating
subsidiaries and different business segments, covering both property
development and property investment — mitigates structural subordination
risks.
Seazen Holdings' liquidity is good. Moody's expects the company's
cash holdings, together with its cash flow from operating activities,
to be enough to cover its maturing debt (including onshore puttable bonds)
and committed land payments over the next 12-18 months.
As of year-end 2020, the company had a cash balance of RMB62.4
billion, which covered 2.6x of its maturing debt of RMB23.9
billion as of the same date.
In terms of environmental, social and governance (ESG) considerations,
Moody's has considered Seazen Group's concentrated ownership of about
67.2% stake in Seazen Holdings. Wang Zhenhua,
through Seazen Group, owned 45.7% of the company.
The risk of concentrated ownership is mitigated by the company's established
governance structures and standards that are required by the relevant
code for companies listed on the Shanghai Stock Exchange. Seazen
Group is also listed on the Hong Kong Stock Exchange and is subject to
the governance of the Exchange and the Securities and Futures Commission
of Hong Kong
With respect to dividend payment, Seazen Holdings has maintained
its payout ratio of less than 32% of its total net profit over
the past three years.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Seazen Holdings' rating could be upgraded if the company further diversifies
its land bank geographically and sustains its contracted sales and rental
income growth. At the same time, the company maintains strong
financial and liquidity profiles, with increasing rental income
that can largely cover its gross interest expenses.
A significant reduction in contingent liabilities associated with JVs
or a decrease in the need to provide funding support to JVs could also
be credit positive.
Seazen Holdings' rating could be downgraded if its contracted sales growth
slows or the company pursues aggressive growth, such that its credit
metrics weaken. These include EBIT/interest coverage falling below
4.0x, revenue/adjusted debt decreasing below 75%-80%
or rental income/interest coverage under 50%, all on a sustained
basis. A downgrade could also occur if its liquidity weakens,
as reflected by cash/short-term debt falling below 125%.
Downward pressure could also increase if the company's contingent liabilities
associated with JVs or the need to provide funding support to JVs increases
significantly.
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.
Seazen Holdings Co., Ltd., founded in 1993 by
Wang Zhenhua, primarily engages in residential development and is
listed on the Shanghai Stock Exchange. It is a 67.2%-owned
subsidiary of Seazen Group Limited and has direct control over the group's
assets, cash flow and operations. As of the end of 2020,
the company had a total land bank with a gross floor area of 142.9
million square meters spanning across 123 cities in China.
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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The first name below is the lead rating analyst for this Credit Rating
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this Credit Rating.
Kaven Tsang
Senior Vice President
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
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JOURNALISTS: 852 3758 1350
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