Hong Kong, May 11, 2021 -- Moody's Investors Service has assigned a Ba3 senior unsecured rating
to the proposed USD notes to be issued by Yanlord Land (HK) Co.,
Limited, a wholly-owned subsidiary of Yanlord Land Group
Limited (Yanlord, Ba2 stable), and guaranteed by Yanlord.
The outlook is stable.
Yanlord plans to use the proceeds from the proposed notes to refinance
its existing offshore debt and other general corporate purposes.
RATINGS RATIONALE
"The proposed issuance will lengthen Yanlord's debt maturity profile and
have a limited impact on its credit metrics, because the proceeds
will be mainly used for refinancing," says Cedric Lai, a Moody's
Vice President and Senior Analyst.
Yanlord's Ba2 corporate family rating (CFR) reflects the company's established
brand name and high-quality products, which provide it with
strong pricing power. The company's sales strategy,
aimed at catering to a broader spectrum of market demand, helps
to reduce the negative impact from regulatory measures that constrain
property demand. The rating also takes into consideration Yanlord's
good liquidity profile and strong access to onshore and offshore funding.
However, its rating is constrained by the company's geographic
concentration, moderate debt leverage, and material exposure
to joint venture (JV) businesses, which hinders the transparency
of its credit metrics. However, the latter is mitigated by
the company's reputable JV partners.
Moody's expects Yanlord's debt leverage, as measured by revenue/adjusted
debt, will strengthen to 65%-72% in the next
12-18 months from 49% in 2020 and 30% in 2019.
This is driven by Moody's expectation of Yanlord's strong
revenue recognition on the back of its strong contracted sales growth
in the past two years, as well as its disciplined approach to pursuing
growth and controlling debt increase.
Meanwhile, Moody's projects Yanlord's EBIT/interest
coverage will improve to 3.5x-4.0x from 3.0x
over the same period, reflecting the effect of revenue growth and
declining interest costs, which will more than offset Moody's
expected decline of gross profit margin. The company's gross
profit margin will likely weaken to around 28% in the next 12-18
months from 36% in 2020, due to rising land costs and regulatory
measures on property selling prices in its home base.
Yanlord's total contracted sales grew 41% yearly to RMB78.5
billion in 2020. Moody's believes Yanlord's sizable
saleable resources, strong sales execution and solid housing demand
in the company's core markets will enable its contracted sales to
grow to RMB80 billion--RMB85 billion in 2021 and 2022.
Yanlord Land (HK) Co., Limited's Ba3 senior unsecured debt
rating is one notch lower than the Yanlord's Ba2 CFR due to structural
subordination risk. The subordination risk refers to the fact that
the majority of Yanlord's claims are at its operating subsidiaries and,
in the event of a bankruptcy, have priority over claims at the holding
company. In addition, the holding company lacks significant
mitigating factors for structural subordination. Consequently,
the expected recovery rate for claims at the holding company will be lower.
Yanlord's liquidity is good. The company's cash balance of
RMB17.3 billion covered 2.1x of its short-term debt
as of the end of 2020. Moody's expects the company's
cash holdings, together with operating cash flow, will be
sufficient to cover its maturing short-term debt, unpaid
committed land purchases and dividend payments in the next 12-18
months.
In terms of environmental, social and governance (ESG) factors,
Moody's has taken into account the concentrated ownership by Yanlord's
largest shareholder and chairman, Mr. Zhong Sheng Jian,
who held approximately 71.191%, direct and indirect,
stake in the company as of 4 May 2021. Moody's has also considered
(1) the presence of five independent non-executive directors on
Yanlord's nine-member board of directors, who also chair
the audit, nominating, remuneration as well as risk management
and sustainability committees; (2) the company's moderate 18%-25%
dividend payout ratio over the past three years; and (3) the presence
of other internal governance structures and standards, as required
under the Corporate Governance Code for companies listed on the Singapore
Exchange.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The stable outlook reflects Moody's expectation that Yanlord's credit
metrics will continue to improve in the next 12-18 months,
supported by its strong revenue recognition and controlled debt increase.
Also, Moody's expects the company will maintain its financial
discipline and good liquidity position over the same period.
Moody's could upgrade Yanlord's CFR if it successfully diversifies the
operations geographically and executes its sales plan through the cycle,
while maintaining strong financial and liquidity profiles.
Specifically, Moody's could upgrade the rating if Yanlord's (1)
revenue/adjusted debt exceeds 85%; and (2) EBIT/interest coverage
is above 4.5x-5.0x, both on a sustained basis.
On the other hand, Moody's could downgrade the rating if (1) Yanlord's
contracted sales growth slows or (2) it pursues aggressive expansion,
such that its credit metrics weaken, with EBIT/interest coverage
falls below 3.25x-3.5x and revenue/adjusted debt
reduces below 60%-65% on a sustained basis;
or (3) its liquidity weakens, as reflected by cash/short-term
debt declining below 125%.
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.
Yanlord Land Group Limited is a real estate developer in China and Singapore.
The company operates across a number of major Chinese cities, including
Shanghai, Nanjing, Suzhou, Hangzhou, Nantong,
Taicang, Yancheng, Shenzhen, Zhuhai, Zhongshan,
Tianjin, Tangshan, Shenyang, Jinan, Haikou,
Sanya, Wuhan and Chengdu. Yanlord also has two residential
developments in Singapore.
Yanlord Land Group Limited is listed on the Singapore Exchange in 2006.
The company had a total land bank of 10.9 million square meters
by gross floor area as of 31 December 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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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.)
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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.
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