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Rating Action:

Moody's assigns Baa3 to Nan Fung' proposed perpetual securities

22 May 2017

Hong Kong, May 22, 2017 -- Moody's Investors Service has assigned a Baa3 rating to the proposed senior perpetual securities to be issued by Nan Fung Treasury (II) Limited, a wholly owned subsidiary of Nan Fung International Holdings Limited (NFIH). The perpetual securities will be unconditionally and irrevocably guaranteed by NFIH.

At the same time, Moody's has affirmed NFIH's Baa3 issuer rating, as well as the senior unsecured rating and provisional (P)Baa3 senior unsecured rating on the guaranteed medium term note (MTN) program of Nan Fung Treasury Limited, a wholly-owned subsidiary of NFIH.

The rating outlook is stable.

The proceeds from the securities will be used for general working capital purposes.

RATINGS RATIONALE

"The Baa3 rating reflects NFIH's long track record in Hong Kong's property market, product diversity, stable recurring income stream partly supported by a growing rental portfolio, strong balance sheet liquidity and low debt leverage," says Stephanie Lau, a Moody's Vice President and Senior Analyst.

The rating also considers the relatively small scale of its operations and land bank, resulting in lumpy property sales, as well as its development exposure to the more volatile property market in China.

Moody's expects the group's debt leverage, as measured by adjusted debt/total capitalization, to increase moderately to 26%-27% in the next 12-18 months, given the increase in debt-funded growth and new investments. This level of leverage remains appropriate for the company's current rating.

The rating on the perpetual securities also reflects the fact that the securities will rank pari passu with all other present and future unsubordinated and unsecured obligations of NFIH.

While NFIH's proposed guaranteed perpetual securities have hybrid-like features, with the option of deferred coupons on a cumulative basis, Moody's considers them as 100% debt-like securities and has not notched down the rating, because the securities have a dividend suspension clause that creates an incentive for the company to service the coupon.

However, the rating on the securities could be lowered — relative to the company's issuer rating — if debt with deferral features becomes a substantial portion of its capital structure, or if Moody's believes that the company will likely defer many payments in advance of default.

The stable outlook reflects our expectation that NFIH's business strategy will remain prudent, such that its financial metrics stay in line with the Baa3 rating category over the next 12-18 months.

Upward pressure could emerge if NFIH (1) reduces the lumpiness in its property sales; (2) increases EBITDA contributions from its majority-controlled projects; and (3) generates larger recurring revenue from its investment property portfolio. Credit metrics that we would consider for an upgrade are EBIT/interest above 6.0x; adjusted debt/total capitalization below 20%-25%; and recurring income coverage of interest above 3.5x on a sustained basis.

Downward rating pressure could emerge if (1) NFIH speeds up its pace of development by investing in new projects that either reduce its cash balance materially or increase its debt leverage; (2) its debt profile deteriorates such that it is more reliant on short-term debt, either to fund short-term property projects or to gear up its investment portfolio; or (3) its ownership structure and management control change materially.

Credit metrics that Moody's would consider for a downgrade include debt leverage -- as measured by adjusted debt/total capitalization -- rising above 30%-35%; EBIT/interest falling below 2.25x; and recurring income coverage of interest falling below 1.25x.

The principal methodology used in these ratings was Homebuilding And Property Development Industry published in April 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Nan Fung International Holdings Limited is an established property developer based in Hong Kong, with property projects in Hong Kong and China. In addition to its own developments, it also has joint ventures with major developers in Hong Kong. The company has a sizable financial investment portfolio, providing the group with a good liquidity buffer.

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.

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.

Stephanie Lau
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

Gary Lau
MD - Corporate Finance
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

No Related Data.
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