Hong Kong, September 25, 2019 -- Moody's Investors Service has assigned a Ba3 backed senior unsecured debt
rating to the proposed senior unsecured USD notes to be issued by RKPF
Overseas 2019 (A) Limited and guaranteed by Road King Infrastructure Limited
(Ba3 stable).
Road King plans to use the proceeds from the proposed notes to acquire
or invest in property projects, and for general corporate purposes.
RATINGS RATIONALE
"Road King's Ba3 corporate family rating reflects the company's
track record in property development, its cautious approach to land
acquisitions and financial management, and its track record of maintaining
adequate liquidity throughout the business cycles," says Cedric
Lai, a Moody's Vice President and Senior Analyst.
The rating also takes into account the stable cash flow from the company's
toll road investments, as well as its stable debt leverage and financial
metrics that are comparable with those of its Ba3-rated peers in
the Chinese property industry.
At the same time, the rating is constrained by the geographic concentration
of the company's land bank, as well as the execution risk associated
with any new toll road acquisitions.
Moody's expects Road King's leverage -- as measured by revenue/adjusted
debt -- will improve to 70%-75% over the next
12-18 months from 63% for the 12 months ended June 2019,
mainly driven by strong contracted sales in the past two years.
The proposed issuance will not substantially change Moody's expectations
for Road King's credit metrics, as the total bond issuance
is within Moody's forecast of new debt raised by the company in
2019 for capital expenditure and general corporate funding.
However, Moody's expects Road King's gross profit margin will
moderate to 33%-35% over the next 12-18 months
from 40% in H1 2019 and 45% in 2018. The high gross
margins recorded during these periods followed the completion of certain
high-margin projects in the Yangtze River Delta region.
Consequently, Moody's expect Road King's EBIT/interest
to normalize to 4.0x-4.5x over the next 12-18
months from the robust 5.4x recorded for the 12 months ended June
2019.
Moody's also expects Road King's recurring income to cover
around 50% of the company's interest expense over the next
12-18 months, supported by moderate 5%-10%
growth in cash receipts from toll toad and rental income.
In the first half of 2019, Road King's contracted sales,
including its share in joint ventures and associates, grew 29%
year-on-year to RMB19.6 billion, following
strong 31% annual growth in 2018. Such robust contracted
sales will support future revenue growth for the company.
Road King's senior unsecured rating is not affected by subordination to
claims at the operating company level, because the company's creditors
benefit from its diversified business profile, including in particular
the cash flow generated from the toll road business.
In terms of environmental, social and governance (ESG) factors,
the rating considers the concentration of the company's ownership in its
controlling shareholder, Wai Kee Holdings Limited, which held
a 43% stake in the company as of 30 June 2019. The associated
risks are partly mitigated by the application of the Listing Rules of
the Hong Kong Stock Exchange and the Securities and Futures Ordinance
in Hong Kong, which regulates related-party transactions.
The stable outlook on the rating reflects Moody's expectation that Road
King will maintain its prudent financial management while growing its
property development and toll road businesses, thereby preserving
stable credit metrics and good liquidity.
Upward ratings pressure could emerge if Road King (1) grows its scale
without sacrificing profit margins; (2) grows its toll road dividends
and improves its interest coverage from recurring income to above 0.6x-0.7x
on a sustained basis; (3) maintains stable credit metrics,
with homebuilding EBIT/interest above 4.0x-4.5x and
revenue/debt above 90%; and (4) maintains adequate liquidity.
On the other hand, downward ratings pressure could emerge if (1)
Road King's liquidity deteriorates because of weaker sales, aggressive
land or other acquisitions; or (2) the operating performance of the
company's property segment deteriorates. Credit metrics indicative
of downward ratings pressure include homebuilding EBIT/interest below
2.5x-3.0x or revenue/debt below 65% 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.
Listed in Hong Kong, Road King Infrastructure Limited invests in
toll road projects comprising five expressways across four provinces in
China: Anhui, Hebei, Hunan and Shanxi. In addition,
at 30 June 2019, the company had a property development portfolio
with a land bank of 7.9 million square meters across the Bohai
Rim, Yangtze River Delta, Greater Bay Area (including Hong
Kong), Henan and Hubei Province.
Wai Kee Holdings Limited and Shenzhen Investment Limited are the largest
shareholders of the company, with 43% and 27% stakes
as of 30 June 2019.
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.
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.
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
Chris Park
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
