Hong Kong, January 08, 2020 -- Moody's Investors Service has assigned a Baa3 rating to the proposed
senior unsecured notes to be issued by Sino-Ocean Land Treasure
IV Limited, a wholly-owned subsidiary of Sino-Ocean
Group Holding Limited (Sino-Ocean, Baa3 stable). The
notes will be covered by an irrevocable and unconditional guarantee from
Sino-Ocean.
The rating outlook is stable.
The company plans to use the bond proceeds mainly to refinance its existing
debt.
RATINGS RATIONALE
"The proposed issuance will not have an immediate impact on Sino-Ocean's
Baa3 issuer rating or stable outlook, because the proceeds will
be used by the company mainly to refinance existing debt," says
Cedric Lai, a Moody's Vice President and Senior Analyst.
Sino-Ocean's Baa3 issuer rating reflects its standalone credit
strength and a two-notch uplift, based on Moody's expectation
that the company will receive strong support from China Life Insurance
Co Ltd (China Life, insurance financial strength A1 stable) —
its largest shareholder — in the event of financial distress.
Sino-Ocean's standalone credit profile reflects its long operating
history in the property sector, focus on conducting business in
high-tier Chinese cities, good access to funding and diversified
products, and the increasing recurring revenue contribution from
its investment property portfolio.
On the other hand, the standalone credit profile is constrained
by its moderate financial metrics.
Moody's expects that Sino-Ocean's adjusted debt leverage -
as measured by revenue/adjusted debt - will recover to around 65%
over the next 12-18 months from 47% for the 12 months ended
30 June 2019, driven by revenue growth on the back of strong contracted
sales in the past two years and controlled debt growth by slowing land
acquisitions.
Similarly, Moody's expects that Sino-Ocean's EBIT/interest
will improve to 2.7x-3.1x over the next 12-18
months from 2.2x for the 12 months ended 30 June 2019.
The two notches of uplift reflects Moody's expectation that China Life
will continue its track record of providing financial support to Sino-Ocean
and treating Sino-Ocean as a strategic investment. This
view also factors in China Life's strong ability to provide support to
Sino-Ocean, as illustrated by its A1 insurance financial
strength.
With respect to governance risk, Sino-Ocean's Baa3
issuer rating has considered the company's:
(1) Financial policy to pursue expansion, which has resulted in
its moderately high leverage;
(2) Good track record in operations and sales execution;
(3) Strong shareholders and representation in the board of directors;
(4) Disclosure of material related-party transactions as required
under the Corporate Governance Code for companies listed on the Hong Kong
Exchange; and
(5) Diversified board of directors and four special committees to supervise
the company's operations.
The company also has a stable dividend policy, as seen by its dividend
payout of around 30%-40% of its net profit over the
past five years.
The stable rating outlook reflects Moody's expectation that Sino-Ocean's
credit metrics will improve to levels supportive of its rating over the
next 12-18 months, and that Moody's assumption of support
from China Life will remain unchanged.
Upward pressure on Sino-Ocean's issuer rating could emerge,
if the company grows its scale through stable sales growth, while
maintaining a strong liquidity position, prudent financial management,
and disciplined land acquisitions.
Credit metrics indicative of upward rating pressure include (1) EBIT/interest
above 4.25x; (2) adjusted revenue/debt above 90%-100%;
or (3) adjusted debt/capitalization below 40% on a sustained basis.
An upgrade of China Life's rating would not have an immediate impact on
Sino-Ocean's rating, without a material improvement in Sino-Ocean's
standalone credit profile.
On the other hand, downward rating pressure could emerge,
if Sino-Ocean suffers a deterioration in its sales execution,
gross profit margin, debt leverage or liquidity position.
Credit metrics indicative of a potential downgrade include: (1)
EBIT/interest below 2.7x; (2) revenue/adjusted debt below
60%-65%; or (3) adjusted debt/capitalization
above 50% on a sustained basis.
Moody's could also downgrade the ratings without a decline in the
company's standalone credit quality, if Moody's assesses that
support from its parent has deteriorated. This situation could
result from any evidence of a reduction in the ownership by or a weakening
of the support from China Life, or a deterioration in China Life's
own credit profile.
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.
Sino-Ocean Group Holding Limited is a leading property developer
in China. The company focuses on developing mid- to high-end
residential properties, office premises and retail properties.
At 30 June 2019, the company had a land bank of about 39.25
million square meters across 47 cities in China.
The Beijing-based company was listed on the Hong Kong Stock Exchange
in September 2007. China Life Insurance Co Ltd and Anbang Insurance
Group Co., Ltd. are its two largest shareholders,
with 29.59% and 29.58% equity stakes,
respectively, 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
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
