Hong Kong, January 26, 2021 -- Moody's Investors Service has assigned a Ba2 senior unsecured rating to
the proposed USD notes to be issued by New Metro Global Limited and guaranteed
by Seazen Group Limited (Ba1 stable).
New Metro is a wholly-owned subsidiary of Seazen Holdings Co.,
Ltd. (Ba1 stable), which in turn is a 67.2%-owned
subsidiary of Seazen Group.
Seazen Group will use the proceeds of the notes mainly to repay its offshore
debt.
RATINGS RATIONALE
"The proposed issuance will extend Seazen Group's debt maturity
profile without materially affecting its financial profile, as the
proceeds will be mainly used to refinance existing debt," says Kaven
Tsang, a Moody's Senior Vice President, and also Moody's Lead
Analyst for Seazen Group.
Seazen Group's Ba1 corporate family rating (CFR) mainly reflects
the credit profile of Seazen Holdings, which accounts for 99.6%
of Seazen Group's revenues in the first half of 2020 and 86.9%
of its debt as of the end of June 2020, and is underpinned by the
company's solid sales execution ability, sizable operation
scale and growing stream of recurring rental income.
At the same time, the CFR is constrained by the company's
geographic concentration in the Yangtze River Delta area and exposure
to joint-venture (JV) businesses.
Moody's expects Seazen Group will grow its business with financial discipline,
such that its contracted sales will grow 5%-10% annually
in the next 1-2 years while its annual debt growth will remain
around 10%. As a result, Seazen Group's revenue/adjusted
debt and EBIT/interest coverage will stay strong at 105%-110%
and 4.0x-4.5x respectively over the next 1-2
years, compared with 91% and 4.3x for the 12 months
ended June 2020.
Additionally, Moody's expects Seazen Group's rental income (excluding
income from commercial property management services) to grow to RMB4.5
billion-RMB6.0 billion over the next 1-2 years from
Moody's estimate of around RMB3 billion in 2020 and RMB2.3
billion in 2019. As a result, Seazen Group's rental income/interest
coverage will strengthen to 60%-70% over the next
1-2 years from 38% in 2019. Such financial metrics
support the company's Ba1 CFR.
Seazen Group's liquidity is good. Moody's expects its cash holdings,
together with its cash flow from operating activities, will be enough
to cover its maturing debt (including onshore puttable bonds) and committed
land payments over the next 12-18 months.
Moody's has also considered the following environmental, social
and governance (ESG) factors in its assessment.
From a governance perspective, the company's ownership is
concentrated in its former chairman, who holds a 68.0%
stake in Seazen Group. This risk is mitigated by its established
management team, as well as its good institutional governance structures
and standards as required by the Hong Kong Stock Exchange.
Seazen Group's Ba2 senior unsecured bond rating is one notch lower than
its CFR because of structural subordination risk. Most of Seazen
Group's claims are at the subsidiary level and have priority over claims
at the holding company in a bankruptcy scenario. In addition,
the holding company lacks significant mitigating factors for structural
subordination.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Seazen Group's stable outlook reflects Moody's expectation that
the company will maintain its strong credit metrics, financial discipline
and good liquidity while pursuing growth in contracted sales and rental
income in the next 1-2 years.
Seazen Group could be upgraded if it further diversifies its land bank
in terms of geographic location and sustains its contracted sales and
rental income growth, while maintaining a strong financial and liquidity
profile, with rising rental income that can largely cover gross
interest expenses.
A significant reduction in contingent liabilities associated with JVs
or a lower likelihood of providing funding support to JVs could also be
positive to the ratings.
On the other hand, Seazen Group could be downgraded if its contracted
sales growth slows or it pursues aggressive growth, such that its
credit metrics weaken with EBIT/interest coverage falling below 4.0x,
revenue/adjusted debt falling below 75%-80%,
or rental income/interest staying under 50%, all on a sustained
basis; or 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 likelihood of providing 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 Group Limited operates through its 67.2%-owned
mainland subsidiary, Seazen Holdings Co., Ltd.,
and engages primarily in residential development in China. Seazen
Group was founded in 1996 by Wang Zhenhua, who is the former chairman
of Seazen Group and Seazen Holdings. Wang Zhenhua is the largest
shareholder of Seazen Group, holding a 68.0% stake
in the company, and has been involved in the property development
business in China (A1 stable) since 1993. The company had a land
bank spread across 115 cities in China, with a total gross floor
area (GFA) of around 137.1 million square meters at the end of
June 2020.
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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3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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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
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
