Hong Kong, June 04, 2020 -- Moody's Investors Service has assigned a Ba3 senior unsecured rating to
the proposed notes to be issued by Seazen Group Limited (Ba2 stable).
The proceeds of the notes will be used to repay the company's offshore
debt that will mature within one year.
RATINGS RATIONALE
"The proposed notes will improve Seazen Group's liquidity but not
have a material impact on its credit metrics, because the proceeds
will be mainly used for refinancing," says Kaven Tsang, a
Moody's Senior Vice President.
Moody's projects that Seazen Group's revenue/adjusted debt and EBIT/interest
coverage will moderate to 70%-75% and around 3.0x-3.5x
in the next 12-18 months from 81% and 4.1x,
respectively, in 2019. This is driven by an expected increase
in debt to support its growth plan after it temporarily suspended land
acquisitions in the second half of 2019.
Nevertheless, these projected metrics will remain appropriate for
its Ba2 corporate family rating (CFR).
Seazen Group's Ba2 CFR mainly reflects the credit profile of Seazen
Holdings Co., Ltd. (Ba2 stable), the company's
67.2%-owned mainland subsidiary that accounts for
most of its operations and financial profile.
The Ba2 CFR also reflects its strong sales execution, growing recurring
rental income from its retail malls, and good liquidity.
Additionally, the rating considers Seazen Group's exposure to the
regional economy of the Yangtze River Delta and its sizable joint venture
(JV) business exposures.
The Ba2 CFR is also supported by its good liquidity. Its cash balance
of RMB65.6 billion as of December 2019 could cover 1.6x
of its maturing debt as of the same date.
Moody's expects the company's cash holdings, together with
its cash flow from operating activities, to be enough to cover its
maturing debt (including onshore puttable bonds) and committed land payments
over the next 12-18 months.
Seazen Group's total contracted sales declined 28% year-on-year
to RMB49.0 billion for the first four months of 2020 due to coronavirus-related
disruptions. However, Moody's expects contracted sales will
recover towards RMB275 billion-RMB280 billion over the next 12-18
months, compared with RMB270.8 billion in 2019, supported
by the company's sales execution and solid hosing demand in its
core market of the Yangtze River Delta area.
With regard to governance considerations, Seazen Group's Ba2 CFR
takes into consideration the concentrated ownership by the company's former
chairman, who holds a total 71% stake in the company.
This risk is partly mitigated by the company's established governance
structures and standards that are required for companies listed on the
Hong Kong Stock Exchange and by the Securities and Futures Commission
of Hong Kong.
Additionally, Seazen Holdings is listed on the Shanghai Stock Exchange
and is subject to the governance standards of the exchange.
The Ba3 senior unsecured bond rating is one notch lower than Seazen Group's
Ba2 CFR because of the risk of structural subordination.
This subordination risk reflects the fact that most of Seazen Group's
claims are at the operating subsidiary level and have priority over claims
at the holding company in a bankruptcy scenario. In addition,
the holding company lacks significant mitigating factors for structural
subordination. As a result, the likely recovery rate for
claims at the holding company will be lower.
The stable outlook reflects Moody's expectation that the company
will maintain resilient contracted sales and liquidity over the next 12-18
months, and that it will maintain uninterrupted access to its major
sources of funding over the same period.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Moody's could upgrade Seazen Group's rating 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 (1) revenue/adjusted
debt exceeds 80%; (2) EBIT/interest coverage is above 4.0x-4.5x,
and (3) rental income/interest coverage exceeds 50%, all
on a sustained basis.
A significant reduction in contingent liabilities associated with JVs
or lower risks of providing funding support to JVs could also be credit
positive. This could be a result of reduced usage of JVs or a significant
improvement in the financial strengths of its JV projects.
On the other hand, Moody's could downgrade the rating if (1)
its contracted sales growth slows; (2) its credit metrics weaken,
with EBIT/interest coverage falling below 3.5x, or revenue/adjusted
debt falling below 65%-70% on a sustained basis;
or (3) its 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 risks of providing funding support
to JVs increase significantly. This could be a result of a significant
deterioration in the financial strengths and liquidity of its JV projects
or a substantial increase in investment 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.
Seazen Group Limited operates through its 67.2%-owned
mainland subsidiary, Seazen Holdings, and engages primarily
in residential development in China. Seazen Group was founded in
1996 by Wang Zhenhua, who is the former chairman of Seazen Group
and Seazen Holdings. Wang Zhenhua is the largest shareholder of
Seazen Group, holding a 71% stake in the company, and
has been involved in the property development business in China (A1 stable)
since 1993. The company had a land bank spread across 105 cities
in China, with a total gross floor area (GFA) of around 123.6
million square meters as of the end of December 2019.
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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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
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
