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Rating Action:

Moody's changes outlook on Fantasia's ratings to negative

 The document has been translated in other languages

03 Aug 2018

Hong Kong, August 03, 2018 -- Moody's Investors Service has changed to negative from stable the outlook on Fantasia Holdings Group Co., Limited's B2 corporate family rating and B3 senior unsecured ratings.

At the same time, Moody's has affirmed all ratings.

RATINGS RATIONALE

"The negative outlook reflects our expectation that Fantasia's refinancing risk will remain high, due to its high level of short-term debt and the current tight credit conditions for property developers in China," says Celine Yang, a Moody's Assistant Vice President and Analyst.

Fantasia has a large amount of debt maturing or puttable over the next 12-18 months, including RMB5.3 billion of puttable onshore bonds, $540 million 364-day offshore senior notes and CNH1.6 billion offshore notes. Moody's is concerned that the company is increasing its reliance on offshore 364-day notes to fund its business.

"The negative outlook also reflects Fantasia's weakened credit metrics, as it adjusted its business focus to grow its property development business — instead of pursuing, as it had done in previous years, high growth in its asset-light businesses — amid tight regulatory measures to contain property price growth," adds Yang, who is also Moody's Lead Analyst for Fantasia.

Moody's expects that Fantasia will require additional funding to replenish its land bank and cover its capital expenditures over the next 12-18 months. While its property development sales will likely increase, the rates of cash collection from presales will unlikely exceed the levels seen in 2017.

Consequently, Moody's expects Fantasia's revenue/adjusted debt will remain weak at around 35%-40% from 32% as of the end of 2017, and EBIT/interest should register around 1.1x-1.2x over the coming 12-18 months. These credit metrics are weak for the company's B2 corporate family rating.

Moreover, with the rising cost of borrowing, Moody's is concerned that there will be further pressure on the company's ability to maintain EBIT/interest above 1x, which was the level registered in 2017.

While Fantasia has shown weakened credit metrics, Moody's expects the company's improving contracted sales will help generate higher levels of revenue, which will in turn enable it to improve its debt leverage, as measured by revenue/adjusted debt, over the longer term. The company achieved RMB11.3 billion in contracted sales in 1H 2018, or 2.2x of the RMB5 billion recorded for the same period in 1H 2017.

Fantasia's B2 corporate family rating reflects the company's (1) established track record in property development in the Chengdu-Chongqing Economic Zone and the Pearl River Delta; and (2) stable recurring income from its property management, rental and hotel management businesses, which can cover around half of its interest expenses.

On the other hand, the B2 rating is constrained by (1) its small scale and high geographic concentration, which result in higher volatility in its performance; and (2) its weak financial management, as shown by its high reliance on short-term funding.

An upgrade of Fantasia's ratings is unlikely, given the negative ratings outlook.

Nevertheless, Fantasia's ratings outlook could return to stable if the company (1) improves its debt maturity profile and reduces refinancing risk; and (2) improves its credit metrics such that revenue/adjusted debt rises above 40% and EBIT/interest improves to 1.5x or above.

The ratings could be downgraded if the company's (1) contracted sales or cash collection weakens; (2) refinancing and liquidity risks are unlikely to improve; or (3) credit metrics are unlikely to improve, with EBIT/interest failing to recover to above 1.5x.

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.

Fantasia Holdings Group Co., Limited is a property developer in China (A1 stable). Established in 1996, the company listed on the Hong Kong Stock Exchange in November 2009. Fantasia had a market capitalization of HKD6.97 billion as of 30 July 2018. Zeng Jie Baby is the company's largest shareholder, with a 57.5% stake as of December 2017.

In addition to property development, Fantasia is also engaged in providing property operation services, property agency services and hotel services for its own properties and properties of third parties.

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.

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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.

YuYing (Celine) Yang
Asst Vice President - 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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