Hong Kong, May 27, 2019 -- Moody's Investors Service has assigned a Ba3 senior unsecured rating to
Agile Group Holdings Limited's (Ba2 stable) proposed USD senior perpetual
capital securities.
The perpetual securities will be issued directly by Agile and rank pari
passu with all of Agile's other present and future unsecured and
unsubordinated obligations.
Agile will use the proceeds from the proposed bonds to refinance existing
debt.
RATINGS RATIONALE
"The proposed perpetual securities will extend Agile's debt maturity profile
and will not have a material impact on its credit metrics, because
the proceeds will mainly be used to refinance existing debt," says
Kaven Tsang, a Moody's Senior Vice President.
Agile's Ba2 corporate family rating (CFR) reflects its strong track record
of property development in Guangdong and Hainan provinces, disciplined
financial management, adequate liquidity with good access to the
offshore debt and banking markets, and decent profitability,
benefitting from its low land costs.
At the same time, its CFR is constrained by the company's material
exposure to Guangdong and Hainan provinces, the impact of potential
regulatory tightening on property sales in its key operating cities,
and execution risks associated with its fast expansion in property and
new businesses.
Agile's Ba3 senior unsecured ratings are 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.
These claims have priority over Agile's senior unsecured claims in a bankruptcy
scenario.
In addition, the holding company lacks significant mitigating factors
for structural subordination. As a result, the likely recovery
rate for claims at the holding company will be lower.
The Ba3 senior unsecured rating for the proposed perpetual capital securities
also considers the following factors:
(1) Moody's treatment of the proposed perpetual securities as pure debt
instruments. Moody's therefore does not apply any equity
treatment to these securities.
(2) The ranking of the securities, which will be pari passu with
all of Agile's other present and future senior obligations.
Moody's expects that Agile's debt leverage, as measured by revenue/adjusted
debt, will recover to 65%-70% over the next
12-18 months from 54% in 2018, because revenue growth
will outpace adjusted debt growth, supported by moderate growth
in contracted sales and growing revenue contribution from Agile's
non-property businesses.
Moody's expects that Agile will achieve moderate growth in presales to
RMB115-RMB120 billion over the next 12-18 months from RMB103
billion in 2018, while its revenue will grow to RMB65-RMB70
billion from RMB56 billion over the same period. In the first four
months of 2019, the company's presales — taken together with
the presales from its joint ventures and associates — grew 16%
year-on-year to RMB34.3 billion, after recording
growth of 14% year-on-year in 2018.
While Agile's growing non-property businesses will offer
some benefits of business diversification, and to some extent,
support the company's revenue growth over the next one to two years,
the contribution will remain small relative to its property development
business. In 2018, Agile's revenues from its non-property
businesses grew 56% year-on-year to RMB3.7
billion, representing only 7% of its total revenue in the
same year.
Moody's also expects that Agile will control its debt growth by taking
a disciplined approach on land acquisition and new business expansion,
such that its adjusted debt will grow only 10%-15%
to RMB115-RMB120 billion over the next 12-18 months from
RMB104 billion at 31 December 2018.
While Agile's EBIT interest coverage will fall slightly to 3.5x-4.0x
from 4.1x over the same period because of a likely decline in gross
margin to 30%-40% from a high level of 44%
in 2018, the projected interest coverage ratio remains supportive
of its Ba2 CFR.
Agile's liquidity position is good. Its cash holdings of RMB45.1
billion at the end of 2018 can fully cover its short-term debt
of RMB35.3 billion as of the same date. Moody's expects
that over the next 12 months, Agile's cash holdings,
plus its operating cash flow, will be sufficient to cover its short-term
debt, committed land premiums and dividend payments.
Agile's stable outlook reflects Moody's expectation that over the
next 12-18 months, the company will maintain a disciplined
approach to land acquisitions and new business expansion, grow moderately
in scale, achieve stable financial metrics, and an adequate
liquidity position.
Upward ratings pressure could develop if Agile grows its scale while (1)
maintaining a strong liquidity position; and (2) improving its credit
metrics, with adjusted revenue/debt above 95%-100%
and EBIT/interest coverage above 5.0x-5.5x on a sustained
basis.
Downward ratings pressure could emerge if Agile's contracted sales fall
and credit metrics weaken, with EBIT/interest coverage falling below
3.5x, or adjusted revenue/debt falling below 70%-75%
on a sustained basis.
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.
Agile Group Holdings Limited is a major property developer in China,
operating in the mid- to high-end segment of the market.
At the end of 2018, the company had a land bank with a total gross
floor area of 36.2 million square meters in 65 cities.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
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Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
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Please see the ratings tab on the issuer/entity page on www.moodys.com
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.
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
