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Rating Action:

Moody's assigns Ba3 to Agile Group Holdings' proposed USD perpetual notes

24 Oct 2019

Hong Kong, October 24, 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 its 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, as it will mainly use the proceeds to refinance existing debt," says Kaven Tsang, a Moody's Senior Vice President.

Agile's Ba2 corporate family rating (CFR) reflects its strong market position and solid track record of property development in its core markets of Guangdong and Hainan, its disciplined financial management, good liquidity with good access to the offshore debt and banking markets, and low land costs.

At the same time, the company's Ba2 CFR reflects its geographic concentration, exposing it to the risk of changes to local regulations, and the execution and financial risks associated with its expansion into 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 fact that the securities will rank 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 around 70% by 2020 from 52% in the 12 months ended June 2019, as revenue growth will outpace adjusted debt growth. This recovery will in turn be supported by moderate presales growth and growing revenue contributions from Agile's non-property businesses.

Likewise, Moody's expects Agile's EBIT interest coverage will recover to around 4.0x from 2.9x over the same period. These projected metrics will support the company's Ba2 CFR.

Moody's expects that Agile will achieve moderate growth in presales to RMB110-RMB130 billion over the next 12-18 months from RMB103 billion in 2018, while its revenue will grow to RMB65-RMB80 billion from RMB56 billion over the same period.

In the first nine months of 2019, the company's presales — along with presales from its joint ventures and associates — grew 24.5% year-on-year to RMB87.6 billion, following 14% year-on-year growth in 2018. These numbers leave the company on track to meet its presales target for the full year 2019 and will support revenue growth in the next 12-18 months.

Moody's also expects that Agile will control its debt growth by taking a disciplined approach towards land acquisition and new business expansion, such that its adjusted debt will grow only around 10% to RMB110-RMB115 billion over the next 12-18 months from RMB104 billion at 31 December 2018.

In terms of environmental, social and governance (ESG) factors, the Ba2 CFR has considered Agile's concentrated ownership by its key shareholder, the Chen family, which held a total 67.1% stake in the company as of 30 June 2019. The Ba2 CFR has also considered the family's track record of injecting equity of around HKD1.6 billion into the company to support its liquidity and refinancing needs during the difficult time in 2014. In addition, the company's listing on the Hong Kong Stock Exchange means it needs to comply with certain internal governance structures and disclosure standards under the Corporate Governance Code.

Agile's liquidity position is good. Its cash holdings of RMB41.6 billion at 30 June 2019 could fully cover its RMB36.1 billion in short-term debt as of the same date. Moody's expects that over the next 12 months, Agile's cash holdings and 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 the company will maintain its disciplined approach to land acquisitions and new business expansion, thereby improving its financial metrics over the next 12-18 months.

Upward rating pressure could develop if Agile grows its scale while maintaining (1) a strong liquidity position; and (2) sound credit metrics, with adjusted revenue/debt above 95%-100% and EBIT/interest coverage above 5.0x-5.5x on a sustained basis.

Downward rating pressure could develop if Agile's presales decline or the company turns to an aggressive expansion strategy in its property or non-property businesses such that its credit metrics weaken, with its EBIT/interest coverage failing to return to 3.5x or adjusted revenue/debt failing to trend back to 70%.

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. As of 30 June 2019, the company had a land bank with a total gross floor area (GFA) of around 39.3 million square meters (sqm) in 72 cities.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 review.

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 the rating.

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

No Related Data.
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