Hong Kong, January 05, 2021 -- 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 2020 (A) Limited and guaranteed by Road King Infrastructure Limited
(Ba3 stable). The outlook on the rating is stable.
Road King plans to use the proceeds from the proposed notes to refinance
its maturing debt and for general corporate purposes.
RATINGS RATIONALE
"Road King's Ba3 corporate family rating (CFR) reflects the company's
track record in property development and its cautious approach to land
acquisitions and financial management," says Cedric Lai, a
Moody's Vice President and Senior Analyst.
The rating also takes into account its track record of maintaining adequate
liquidity throughout the business cycles and the stable cash flow from
its toll road investments.
"However, the CFR is constrained by the geographic concentration
of the company's land bank, the execution risk associated with new
toll road acquisitions, and its moderate debt leverage," adds
Lai.
The proposed issuance will lengthen Road King's debt maturity profile
and have a limited impact on its credit metrics, because the proceeds
will be mainly used for refinancing.
Moody's expects Road King's debt leverage - as measured by revenue/adjusted
debt - will improve to 60%-65% over the next
12-18 months from around 51% for the 12 months ended June
2020, supported by increased revenue recognition from robust contracted
sales over the past two years and the company's prudent financial management
to control debt growth.
Road King's interest-servicing ability, as measured by EBIT/interest,
will also improve slightly to 3.0x-3.5x over the
next 12-18 months from 2.9x for the 12 months ended June
2020, supported by revenue growth and improved cash distributions
from toll road projects.
Moody's expects Road King's recurring income interest coverage will recover
to 30%-35% over the next 12-18 months from
20% for the 12 months ended June 2020, with cash distributions
from toll roads to improve to HKD750 million-HKD800 million from
HKD444 million over the same period, supported by a recovery in
toll traffic and revenue given the resumption of toll collections since
May 2020.
In the first nine months of 2020, Road King's contracted sales,
including its share of sales in joint ventures and associates, reached
RMB29.8 billion, which is largely flat compared to the same
period in 2019. Moody's expects that Road King will achieve modest
sales growth over the next 12-18 months, driven by its strong
brand recognition and execution capability in home markets.
Road King's liquidity is good. Its cash balance of HKD15.1
billion at 30 June 2020 could cover 114% of its short-term
debt as of the same date. Moody's expects Road King's cash balance,
together with its operating cash flow, will be sufficient to cover
its short-term debt, committed land premiums and dividend
payments over the next 12 months.
Road King's senior unsecured rating is unaffected 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 company's toll road business.
In terms of environmental, social and governance (ESG) factors,
Moody's has considered 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 2020.
Moody's has also considered (1) the fact that independent directors chair
the audit and remuneration committees; (2) low dividend payouts;
and (3) the presence of other internal governance structures and standards
as required by the Hong Kong Stock Exchange.
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 because of the substantial implications for
public health and safety.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
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.
Moody's could upgrade the rating 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 its homebuilding EBIT/interest staying above 4.0x-4.5x
and revenue/debt staying above 90%; and (4) maintains adequate
liquidity.
On the other hand, Moody's could downgrade the rating if (1) Road
King's liquidity deteriorates because of weaker sales or aggressive land
or other acquisitions; or (2) the operating performance of the company's
property segment deteriorates. Credit metrics indicative of a downgrade
include its homebuilding EBIT/interest staying below 2.5x-3.0x
or revenue/debt staying below 65%, on a sustained basis.
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.
Listed in Hong Kong SAR, Road King Infrastructure Limited invests
in toll road projects on seven expressways across four provinces in China
-- Anhui, Hebei, Hunan and Shanxi -- and Indonesia.
At 30 June 2020, the company had a property development portfolio
with a land bank of 7.0 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
respectively as of 30 June 2020.
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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The Global Scale Credit Rating on this Credit Rating Announcement was
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3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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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
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
