Hong Kong, September 25, 2019 -- Moody's Investors Service ("Moody's") has changed to negative from
stable the outlook on (1) Xinhu Zhongbao Co., Ltd.'s
("Xinhu Zhongbao") B2 corporate family rating; and (2) the B3 senior
unsecured ratings on the bonds issued by Xinhu (BVI) 2018 Holding Company
Limited and Xinhu (BVI) Holding Company Limited and guaranteed by Xinhu
Zhongbao Co., Ltd.
At the same time, Moody's has affirmed all the ratings.
RATINGS RATIONALE
"The change in outlook reflects Xinhu Zhongbao's increased debt refinancing
risk over the next 12-18 months, amid tightening credit conditions
in China," says Celine Yang, a Moody's Assistant Vice President
and Analyst.
At the end of June 2019, Xinhu Zhongbao's cash balance of
RMB15.3 billion (including restricted cash) was inadequate to cover
its RMB26.2 billion of debt maturing by June 2020. Its maturing
debt included RMB1.6 billion of corporate bonds due November 2019
and $648 million senior notes due March 2020.
While the company's investment portfolio included RMB33.7
billion of long-term investments and RMB7.8 billion of other
non-current financial assets as of the end of June 2019,
Moody's estimates that around 40% of the portfolio was pledged
for borrowings, reducing flexibility to liquidate investments.
The company has also disposed of some development projects to improve
its liquidity , which is behavior more commensurate with the lower
B rating level.
The negative outlook also reflects the company's high debt leverage,
with revenue/adjusted debt registering 22% for the 12 months ended
June 2019. Moody's expects the company's debt leverage
will remain around 19%-21% over the next 12-18
months, which is high for its B2 CFR.
Moody's further expects Xinhu Zhongbao's borrowing costs will
increase amid tight credit conditions in China (A1 stable), which
will in turn weaken its interest coverage. Its EBIT/adjusted interest
will likely also weaken to 1.3x-1.4x over the next
12-18 months from 1.8x for the 12 months end June 2019.
Xinhu Zhongbao's B2 CFR reflects the company's track record of developing
residential property projects in the Yangtze River Delta, and its
quality and low-cost land bank. The rating also reflects
Xinhu Zhongbao's track record of access to domestic and offshore bank
and bond markets.
However, the company's B2 CFR is constrained by its weak liquidity
and credit metrics.
Given the negative outlook, a rating upgrade is unlikely.
However, the outlook could return to stable if the company improves
(1) its liquidity position, such that cash/short-term debt
(including puttable bonds) rises above 1.0x on a sustained basis;
and (2) its credit metrics, such that EBIT/interest coverage improves
to 1.5x and revenue/adjusted debt above 25%-30%,
both on a sustained basis.
On the other hand, the ratings could be downgraded if the company's
liquidity further deteriorates, if it disposes of projects to raise
liquidity, or if its contracted sales decline.
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.
Xinhu Zhongbao Co., Ltd. listed on the Shanghai Stock
Exchange in 1999. The company is headquartered in Hangzhou and
commenced its first residential property project in Wenzhou, Zhejiang
Province, in the early 1990s.
Its operations are mainly focused on residential property development.
In addition, the company invests in financial services, internet
and information-related companies, and is also engaged in
commodities trading.
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
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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
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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.
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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Please see www.moodys.com for any updates on changes to
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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.
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
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