Hong Kong, June 06, 2019 -- Moody's Investors Service has assigned a Ba3 backed senior unsecured
rating to the proposed bonds to be issued by Gemdale Ever Prosperity Investment
Limited, a wholly owned subsidiary of Famous Commercial Limited
(Ba3 stable).
The proposed bonds will be guaranteed by Famous and will be supported
by a deed of equity interest purchase undertaking and a keepwell deed
between Famous, Gemdale Corporation (Ba2 stable) and the bond trustee.
The proceeds from the issuance will be used to refinance Gemdale group's
existing indebtedness and for general corporate purposes. Famous
Commercial Limited, Gemdale Ever Prosperity Investment Limited and
Gemdale Corporation are herein collectively referred to as the Gemdale
group.
RATINGS RATIONALE
"The proposed bond issuance will not have a material impact on the credit
metrics of either Gemdale or Famous, because the majority of the
proceeds will be used to repay existing debt," says Kaven Tsang,
a Moody's Senior Vice President.
Moody's expects that Gemdale's revenue/adjusted debt (after
adjustments for joint ventures (JVs)) will improve to 75%-80%
over the next 1-2 years from an estimated 74% in 2018,
supported by increased revenue recognition following strong contracted
sales over the past two years.
However, JV-adjusted EBIT/interest coverage will fall to
around 5.0x in the next 1-2 years from an estimated 6.2x
in 2018, due to an increased level of debt and rising finance costs.
These JV-adjusted financial metrics continue to support its Ba2
CFR.
The Ba3 bond rating reflects Famous' standalone credit profile and
a two-notch uplift, based on Moody's expectation that
its parent, Gemdale, will provide financial support to Famous
in case of need.
The two-notch uplift considers (1) Gemdale's full ownership of
Famous, (2) Famous' status as a primary platform for Gemdale to
raise funds from the offshore bank and debt capital markets, and
(3) Gemdale's track record of providing financial support to Famous.
Famous' standalone credit profile is constrained by the small scale of
its operations, its weak financial metrics and the potential for
volatility in its sales performance. The standalone credit profile
also factors in the operational benefits arising from the company's status
as a subsidiary of Gemdale, such as cost efficiencies and a strong
brand name.
Moody's expects that Gemdale will have the ability to provide support,
if needed. Its Ba2 corporate family rating (CFR) reflects its established
brand name and track record in China's (A1 stable) property market,
disciplined management, adequate liquidity and good access to funding.
Gemdale's liquidity is also good, supported by its strong
contracted sales and good access to funding. As of December 2018,
the company's cash of RMB44 billion could cover 4.0x of its short-term
debt as of the same date.
The stable outlook on Famous reflects Moody's expectation that (1)
the company's standalone credit profile will remain largely stable,
and (2) the likelihood of support from Gemdale will remain intact over
the next 12-18 months.
Upward rating pressure could emerge if (1) Famous expands its scale and
diversity to reduce sales and earnings volatility, (2) the company
improves its financial profile, with EBIT/interest exceeding 3.0x,
or (3) Gemdale's rating is upgraded.
On the other hand, a downgrade of Gemdale's rating would result
in a downgrade of Famous' rating.
In addition, any evidence of reducing support from Gemdale,
or a weakening in the link between Famous and Gemdale, could be
negative for the company's rating.
Famous' rating could also come under downward pressure if (1) its operating
cash flow becomes weaker than expected, or (2) it materially accelerates
project development and rolls out an aggressive land acquisition plan,
such that its financial profile weakens, with EBIT/interest falling
below 1.25x-1.50x 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.
Incorporated in China and listed on the Shanghai Stock Exchange,
Gemdale Corporation is a leading developer in China's residential property
sector. At the end of December 2018, the company's land bank
totaled around 44 million square meters (sqm) in saleable gross floor
area (GFA) in over 50 cities in China.
Incorporated in Hong Kong in 1995, Famous Commercial Limited is
a wholly owned subsidiary of Gemdale Corporation. The company also
serves as a funding vehicle in overseas markets.
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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
its ratings process. Please refer to www.moodys.com
for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
Policy for Designating Non-Participating Rated Entities.
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
Clement Cheuk Yiu Wong
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
