Hong Kong, October 07, 2020 -- Moody's Investors Service has assigned a Ba3 senior unsecured rating to
the USD notes to be issued by Agile Group Holdings Limited (Ba2 negative).
Agile plans to use the proceeds from the proposed notes to refinance existing
offshore debt due within one year.
RATINGS RATIONALE
"Agile's Ba2 corporate family rating (CFR) reflects the company's
strong market position and solid track record of property development
in its core Guangdong and Hainan markets; its disciplined financial
management; good liquidity; and improving geographic diversification,"
says Kaven Tsang, a Moody's Senior Vice President.
"At the same time, the company's Ba2 rating incorporates its
modest financial metrics and its exposure to the financial and execution
risks associated with its expansion into non-property businesses,"
adds Tsang.
Agile's Ba3 senior unsecured bond rating is one notch below its CFR because
of the risk of structural subordination. This subordination risk
reflects the fact that most of Agile's claims are at the operating subsidiaries
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. As a result, the expected recovery
rate for claims at the holding company will be lower.
The proposed issuance will provide Agile with additional liquidity and
lengthen its debt maturity profile, while the impact on its credit
metrics will be limited because it will use the proceeds mainly to refinance
existing debt.
Moody's expects Agile's key financial metrics to improve in
the next 12-18 months as the company continues to grow its property
development business, ramp up its nondevelopment businesses and
control its debt growth.
Specifically, Moody's expects Agile's revenue/adjusted
debt will improve toward 65% and EBIT/interest to around 3.5x
over the next 12-18 months from 55% and 2.6x,
respectively, for the 12 months ended June 2020.
Agile's property presales rose 2.5% year on year to
RMB77.7 billion in the first eight months of 2020, despite
the disruption caused by the coronavirus outbreak in Q1 2020.
Moody's expects its annual presales to remain largely flat at RMB115
billion-RMB120 billion in 2020 compared with RMB118 billion in
2019. This presales performance will support Agile's liquidity
and revenue recognition over the next 1-2 years.
Agile's liquidity is good. Its cash on hand of RMB46.4 billion
as of June 2020 can cover 1.2x its short-term debt of RMB40.5
billion, up from 1.0x as of December 2019.
Moody's expects Agile's cash holdings and operating cash flow
will be sufficient to cover its maturing debt, committed land premiums
and dividend payments in the next 12 months.
In terms of environmental, social and governance (ESG) considerations,
Agile's CFR takes into consideration its concentrated ownership by its
key shareholder, the Chen family, which held a total 67.1%
stake in the company as of 30 June 2020. The family has a track
record of injecting equity, including around HKD1.6 billion
to support Agile's liquidity and refinancing needs during a difficult
time in 2014.
Moody's regards the impact of the deteriorating global economic
outlook because of the rapid and widening spread of the coronavirus pandemic
as a social risk under its ESG framework, given the substantial
implications for public health and safety.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Agile's negative outlook reflects the uncertainties around the company's
ability to deleverage and improve its financial metrics to levels supportive
of its current rating level.
An upgrade is unlikely, given the negative outlook.
However, the outlook could be revised to stable if (1) Agile successfully
executes its business expansion plan by meeting its presales targets and
ramps up its environmental protection business; (2) maintains strong
liquidity; and (3) improves its credit metrics, with revenue/adjusted
debt trending to 65%-70% and EBIT/interest coverage
trending to 3.0x-3.5x on a sustained basis.
Moody's could downgrade the rating if (1) Agile's presales decline;
(2) the company fails to ramp up its environmental protection business;
or (3) it turns to a more aggressive expansion strategy in its property
or non-property businesses, such that its credit metrics
remain weak.
Metrics Moody's would consider for a downgrade include EBIT/interest
coverage failing to trend to 3.0x-3.5x or revenue/adjusted
debt failing to trend back to 65%-70% over the next
12-18 months.
Any signs of weakening liquidity, with cash/short-term debt
consistently below 1.0x, will also hurt the rating.
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.
Agile Group Holdings Limited is a major property developer in China,
operating in the mid- to high-end segment. As of
30 June 2020, the company had a land bank with a total planned gross
floor area (GFA) of 53 million square meters (sqm) in 81 cities across
China, Hong Kong and overseas.
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.
For ratings issued on a program, series, category/class of
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governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed by
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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
