Hong Kong, May 15, 2018 -- Moody's Investors Service has assigned a first-time B2 corporate
family rating (CFR) to Guangdong Helenbergh Real Estate Group Co.,
Ltd.
The rating outlook is stable.
RATINGS RATIONALE
"Helenbergh's B2 CFR reflects the company's fast turnover
business model and diversified land acquisition strategy which support
business growth and stable financial metrics," says Kaven
Tsang, a Moody's Vice President and Senior Credit Officer.
The company has a track record of acquiring land through multiple channels,
including project acquisitions and urban redevelopment, that enables
it to maintain land at reasonable costs.
Moody's estimates that the cost of Helenbergh's land bank
at around RMB2,000 per square meter at the end of December 2017.
This cost provides more pricing flexibility and supports the company's
execution of its growth plan in a challenging operating environment over
the next 12-18 months.
Helenbergh achieved strong 71% year-on-year growth
in contracted sales to RMB25.7 billion in 2017, after 24%
year-on-year growth in 2016. These strong sales support
the company's liquidity and revenue growth. The latter in
turn partly mitigates the high debt growth needed to support its expansion
in the next 12-18 months.
The average selling price for contracted sales grew 42% year-on-year
in 2017 to RMB 9,772 per square meter, which supports an improvement
in its adjusted gross profit margin to around 24% in the next 12-18
months -- from 22.6% in 2017 --
that will temper the effect of increasing borrowing costs.
Moody's expects Helenbergh's revenue/adjusted debt will remain
largely stable at 70%-75% in the next 12-18
months from 74% in 2017. Its EBIT/interest coverage will
also be largely stable at around 2.9x over the same period,
compared to 2.8x in 2017. These ratios well position the
company's CFR at the B2 level.
"The company's rating, however, is constrained
by its private company status, narrow funding access, and
it high level of outstanding trust loans and loans from asset management
companies, a situation which raises its refinancing risks",
adds Tsang, also the lead analyst of Helenbergh.
At the end of December 2017, trust loans and loans from asset management
companies accounted for more than 60% of the company's borrowings.
Out of the RMB8.8 billion in short-term debt due in 2018,
Moody's estimates that the vast majority would be either trust loans
or loans from asset management companies. This situation increases
refinancing risk, given the company's narrow funding access
and the fact that the Chinese government is tightening traditional and
shadow bank lending to the property sector.
However, Moody's draws some comfort that the company has adequate
cash to meet its near-term refinancing needs. At the end
of December 2017, it had a cash balance of RMB10 billion,
which can fully cover its short-term debt of RMB8.8 billion.
Moody's also notes that the company did not have a material amount
of committed land payments at the end of 2017.
Helenbergh's B2 CFR rating is also constrained by its private company
status as -- in this situation -- corporate transparency and
governance requirements are generally lower than those for listed companies.
Helenbergh's rating also reflects its material exposure to low-tier
cities due to the company's strategy to focus on satellite cities
to capture the spillover demand from the major cities. Weaker economic
fundamentals in low-tier cities will make the property markets
in these cities more vulnerable in a market down-cycle.
The stable outlook reflects our expectation that the company will maintain
sufficient balance sheet liquidity and will grow its scale, as planned,
while maintaining a disciplined approach to land acquisitions.
Helenbergh's rating could be upgraded if it can (1) achieve planned
contracted sales and revenue growth, while maintaining its current
financial profile; and (2) strengthen its liquidity through the diversification
of its funding channels and extension of its debt maturity profile.
On the other hand, the rating could be downgraded if the company
(1) suffers from weaker contracted sales due to a market slowdown;
or (2) accelerates its land acquisitions beyond Moody's expectations,
which will weaken its financial metrics and liquidity.
Financial metrics indicating a downgrade would be (1) EBIT/interest coverage
below 1.5-2x; or (2) liquidity position weakens or
refinancing risk escalates, such that cash/ short-term debt
falls below 1.0x.
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.
Guangdong Helenbergh Real Estate Group Co., Ltd. is
a Guangdong-based residential property developer. It offers
different products, such as apartments, high-rise residential
buildings and villas. At the end of December 2017, it had
land reserves of 28 million square meters in gross floor area (GFA),
including around 13 million square meters of GFA pending settlement,
in 29 cities. Its key operating cities include Huizhou, Kunming,
Wuhan and Zhaoqing.
The company was founded by chairman Huang Chiheng in 2005. He and
his son have 100% equity in the company.
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.
Kaven Tsang
VP - Senior Credit Officer
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
