Hong Kong, March 18, 2019 -- Moody's Investors Service has today revised the outlook on Yuexiu
Property Company Limited, Westwood Group Holdings Limited and Leading
Affluence Limited to stable from negative.
At the same time, Moody's has affirmed the following ratings:
- Yuexiu Property's Baa3 issuer rating;
- Yuexiu Property's provisional (P)Baa3 senior unsecured
rating for its medium term note (MTN) program;
- Westwood Group's provisional (P)Baa3 backed senior unsecured
rating for its MTN program guaranteed by Yuexiu Property; and
- The Baa3 backed senior unsecured ratings assigned to Yuexiu Property's
guaranteed bonds issued by Leading Affluence and Westwood Group.
RATINGS RATIONALE
"The revision of the outlook to stable from negative reflects our expectation
that the credit profile of Yuexiu Property's controlling shareholder,
Guangzhou Yue Xiu Holdings Limited, will gradually improve over
the next 12-18 months, strengthening Guangzhou Yue Xiu's
ability to provide support to Yuexiu Property," says Kaven
Tsang, a Moody's Senior Vice President.
"We also expect that Yuexiu Property's standalone credit profile
will remain stable, given that its robust contracted sales growth,
growing revenue and EBIT, and stronger equity base will offset the
effect of rising debt to support its fast expansion," adds
Tsang.
Yuexiu Property's Baa3 issuer rating reflects its ba2-level
standalone credit profile and a two-notch uplift, based on
the likelihood of the company receiving extraordinary support from its
ultimate parent, Guangzhou Yue Xiu, one of the largest enterprises
owned by the Guangzhou Municipal Government, through the Guangzhou
State-owned Assets Supervision and Administration Commission (SASAC).
Moody's expects that Guangzhou Yue Xiu's progressive reduction
in its leverage over the next 12-18 months will improve its ability
to provide support to Yuexiu Property. The expectation that the
company will deleverage is because of 1) the group's growing revenues
and profits from previous investments; and 2) the issuance of equities
at the subsidiary level, and disposal of non-core assets
to fund future business growth and debt repayment.
Guangzhou Yue Xiu's ability to provide support is also based on
Moody's assessment that Guangzhou Yue Xiu has a diversified business
portfolio in three major business segments — property, transportation
and financial services — and that the flagship entities operating
in these segments, Yuexiu Property, Yuexiu Transport Infrastructure
Limited (Baa2 stable) and Chong Hing Bank Limited (Baa1 stable),
have solid credit profiles.
Guangzhou Yue Xiu also has good access to both onshore and offshore funding,
given its state-owned background.
On Yuexiu Property, Moody's expects that the company's
adjusted debt/capitalization will improve slightly to 53%-55%
over the next one to two years from 56.6% at the end of
2018, because its proposed issuance of new equities to Guangzhou
Metro Group Co., Ltd. (A1 stable) will improve Yuexiu
Property's equity base to support its business growth over the next
one to two years.
Meanwhile, Yuexiu Property's EBIT/interest will improve slightly
to 3.0x in 2020 from 2.7x in 2018, given that the
growth in revenue and EBIT will largely offset the effect of higher debt
and interest expenses.
Furthermore, the company's closer relationship with Guangzhou
Metro will provide it with more opportunities to participate in property
projects along the metro lines operated by Guangzhou Metro. Such
a situation will in turn strengthen Yuexiu Property's access to quality
land resources in Guangzhou, and its market position in the property
development market in the Guangdong-Hong Kong-Macao Greater
Bay Area.
This strength will also partly mitigate the risk of the company's
fairly high geographic concentration in Guangdong Province.
In addition, Yuexiu Property's rental and management fee income
from its investment property portfolio will provide the company with stable
cash flow for debt servicing. Its rental income/gross interest
will stay at 28%-30% over the next 12-18 months
versus 31% in 2018. This coverage position supports its
standalone credit profile.
Yuexiu Property's standalone credit profile continues to reflect
its good track record of developing landmark integrated projects in prime
locations in Guangzhou, and strong access to both onshore and offshore
funding.
Furthermore, Yuexiu Property's associate company, Yuexiu Real
Estate Investment Trust (Baa3 stable), offers an additional platform
for fund raising and capital recycling, which is a positive factor
for its standalone credit profile.
While Guangzhou Yue Xiu's ownership in Yuexiu Property will reduce to
39.78% from 49.67% after Yuexiu Property's
proposed issuance of new shares to Guangzhou Metro is completed,
Guangzhou Yue Xiu will remain the single largest shareholder of Yuexiu
Property.
Moreover, the Guangzhou Municipal Government's indirect ownership
in Yuexiu Property through the Guangzhou SASAC will increase to 59.7%
from 49.7%, after Guangzhou Metro's acquisition
of a 19.9% ownership in the company, signifying Yuexiu
Property's close linkage to the municipal government.
The two-notch uplift reflects Moody's expectation that Guangzhou
Yue Xiu will continue to provide strong support to Yuexiu Property at
times of stress, because (1) Guangzhou Yue Xiu is the single largest
shareholder of Yuexiu Property and has a strong track record of providing
financial assistance to the latter, and (2) Yuexiu Property has
provided significant contributions to the group's revenue and earnings,
and has a strategic role in developing the group's core property
business, particularly in the Guangdong-Hong Kong-Macao
Greater Bay Area.
Moody's could upgrade Yuexiu Property's ratings if (1) the
credit profile of Guangzhou Yue Xiu further improves, such that
the level of parental support strengthens; and (2) the company's
credit metrics improve, in particular, if its interest coverage,
as measured by adjusted EBIT/interest, rises above 3.5x and
adjusted debt/capitalization falls below 50.0%.
However, Moody's could downgrade the ratings if (1) there
is a weakening in either Guangzhou Yue Xiu's ability or willingness
to provide support; (2) Yuexiu Property fails to achieve sales growth
or its sales targets; (3) Yuexiu Property's liquidity weakens
because of poor sales, aggressive land acquisitions or an inability
to monetize its assets through Yuexiu REIT; or (4) its credit metrics
deteriorate, with adjusted debt/capitalization exceeding 55.0%
and/or EBIT/interest falling below 2.0x-2.5x on a
sustained basis.
The principal methodology used in these ratings 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.
Yuexiu Property Company Limited engages in property development and investment,
with a main focus on Guangzhou in Guangdong Province.
At 31 December 2018, the company had a land bank with a total gross
floor area of around 19.41 million square meters. It also
held a 36.12% stake in Yuexiu Real Estate Investment Trust
(Baa3 stable) as of the same date.
The company was 49.67% owned by Guangzhou Yue Xiu Holdings
Limited at the end of 2018. Guangzhou Yue Xiu is a state-owned
enterprise wholly-owned by the Guangzhou Municipal Government,
through the Guangzhou State-owned Assets Supervision and Administration
Commission.
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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
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the rated entities are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
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tab on the issuer/entity page and for details of Moody's Policy
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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
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
