Hong Kong, May 10, 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 its
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 upgrades in key Tier 1 and Tier 2 cities.
This focus helps the company achieve a rapid asset turnover,"
says Cedric Lai, a Moody's Vice President and Senior Analyst.
The rating also takes into account the company's good liquidity,
expanding scale and diversified geographic coverage.
At the same time, CIFI's credit profile is constrained by its 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.
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 its debt.
Moody's expects CIFI's debt leverage -- as measured by revenue/adjusted
debt, excluding adjustments for its JVs and associates --
will improve to 65%-70% over the next 12-18
months, from 59% for 2020. The improvement will be
driven by the company's (1) robust revenue recognition on the back
of strong contracted sales over the past 2-3 years, (2) disciplined
approach to growth, and (3) controlled debt increases.
In addition, Moody's expects CIFI's EBIT/interest, excluding
adjustments for its JVs and associates, will improve to 3.1x-3.3x
from 2.8x over the same period, driven by Moody's expectation
for strong growth in the company's revenue, stable profit
margins, and lower average funding costs.
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 RMB250 billion-RMB260
billion over the next two years. CIFI's total contracted sales
grew 15.2% yearly to RMB231 billion in 2020.
The Ba3 senior unsecured debt rating is one notch lower than the CFR due
to structural subordination risk. The 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 is good. The company's cash balance of RMB51.1
billion covered 2.7x of its short-term debt as of the end
of 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, and capital spending and payables for 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 52.2% stake in the company as of 31
March 2021. 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; (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;
and (3) CIFI's moderate dividend policy. The company distributed
30%-35% of its profits as dividend during 2018-2020.
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 (1) successfully executes its sales
plan through the cycles, (2) improves its financial metrics,
and (3) 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 31 March 2021,
it was 52.2% 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
