Hong Kong, January 05, 2021 -- Moody's Investors Service has assigned a Ba3 senior unsecured rating to
the USD notes to be issued by CIFI Holdings (Group) Co. Ltd.
(Ba2 stable).
CIFI plans to use the proceeds from the proposed notes to refinance existing
debt.
RATINGS RATIONALE
"CIFI's Ba2 corporate family rating (CFR) reflects the company's
ability to execute its property development strategy, which is focused
on catering to housing demand from upgrade in key Tier 1 and Tier 2 cities.
This focus helps the company achieve rapid asset turnover. The
rating also takes into account the company's good liquidity, expanding
scale and growing diversification," says Cedric Lai,
a Moody's Vice President and Senior Analyst.
"However, CIFI's credit profile is constrained by moderate
debt leverage and material exposure to its joint venture (JV) businesses,
which hinders the transparency of its credit metrics, although this
is mitigated by the good reputation of its JV partners," adds Lai.
The proposed issuance will improve CIFI's liquidity profile and not materially
affect its credit metrics, because the company will use the proceeds
to refinance existing debt.
Moody's expects CIFI's debt leverage -- as measured by revenue/adjusted
debt, excluding adjustments for its joint-ventures and associates
-- will improve to 65%-75% over the
next 12-18 months, from 46% for the 12 months ended
June 2020, driven by robust revenue recognition on the back of strong
contracted sales over the past 2-3 years, as well as the
company's disciplined approach to growth and controlling debt increase.
At the same time, Moody's expects CIFI's EBIT/interest, excluding
adjustments for its joint-ventures and associates, will improve
to 3.1x-3.6x from 2.5x over the same period,
driven by higher earnings and declining interest costs.
CIFI's total contracted sales grew 12.5% to RMB200 billion
for the first 11 months of 2020 compared with the same period last year.
Moody's believes CIFI's sizable salable resources, strong sales
execution and solid housing demand in the company's core markets will
enable the company to further grow its contracted sales to RMB220-240
billion in 2021.
The Ba3 senior unsecured debt rating is one notch lower than the corporate
family rating due to structural subordination risk. Majority of
CIFI's claims are at its operating subsidiaries and have priority over
claims at the holding company in a liquidation scenario. 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.
CIFI's liquidity position is good. The company's cash balance of
RMB59.4 billion covered 2.3x of its short-term debt
as of 30 June 2020. Moody's expects the company's cash holdings,
together with expected operating cash inflow, will be able to cover
its maturing short-term debt, committed land purchases,
dividend payments, as well as capital spending and payables for
its previous acquisitions, over the next 12-18 months.
In terms of environmental, social and governance (ESG) factors,
Moody's has taken into account CIFI's concentrated ownership.
Its controlling shareholders, Lin Zhong and his family members,
collectively held a 54.32% stake in the company as of 30
June 2020. Moody's has also considered (1) the fact that the company's
audit and remuneration committees comprise independent non-executive
directors who maintain oversight of the company; and (2) the application
of the Listing Rules of the Hong Kong Stock Exchange and the Securities
and Futures Ordinance in Hong Kong to oversee related-party transactions.
Moody's regards the impact of the deteriorating global economic outlook
amid the rapid and widening spread of the coronavirus outbreak 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
The stable outlook reflects Moody's expectation that CIFI will continue
to adopt a disciplined financial management to achieve its business plan
and maintain good liquidity over the next 12-18 months.
Moody's could upgrade CIFI's CFR if it successfully executes its sales
plan through the cycles and maintains strong liquidity and prudent financial
management practices. Specifically, Moody's could upgrade
the rating if CIFI's (1) revenue/adjusted debt exceeds 80%;
and (2) EBIT/interest coverage is above 4.0x-4.5x,
both on a sustained basis.
A significant reduction in contingent liabilities associated with JVs
or a lower likelihood of providing funding support to JVs could also be
credit positive. This could be the result of reduced usage of JVs
or a significant improvement in the financial strength of its JV projects.
On the other hand, Moody's could downgrade the rating if CIFI's
(1) contracted sales deteriorates; (2) credit metrics weaken,
with EBIT/interest coverage falling below 3.0x-3.5x
or revenue/adjusted debt falling below 65% on a sustained basis;
or (3) liquidity deteriorates, as reflected by cash/short-term
debt falling below 1.25x.
Moody's could also downgrade the rating if the company's contingent liabilities
associated with JVs or the likelihood of providing funding support to
JVs increases significantly. This could be the result of a significant
deterioration in the financial strength and liquidity of its JV projects
or a substantial increase in investments in new JV projects.
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.
CIFI Holdings (Group) Co. Ltd. (CIFI) was founded in 2000,
incorporated in the Cayman Islands in May 2011 and listed on the Hong
Kong Stock Exchange in November 2012. As of 30 June 2020,
it was 54.32% owned by the Lin family.
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.)
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
