Hong Kong, January 15, 2020 -- Moody's Investors Service has today changed the outlooks for Seazen Group
Limited (formerly Future Land Development Holdings Limited), Seazen
Holdings Co., Ltd., and New Metro Global Limited
to stable from negative.
At the same time, Moody's has affirmed the following ratings:
• Seazen Group's Ba2 corporate family rating (CFR) and Ba3
senior unsecured rating;
• Seazen Holdings' Ba2 CFR, and
• The Ba2 backed senior unsecured rating for the bonds issued by
New Metro Global Limited and guaranteed by Seazen Holdings.
Seazen Holdings is a 67.1%-owned subsidiary of Seazen
Group. The two companies are collectively referred to as the Group.
RATINGS RATIONALE
"The change in outlooks to stable from negative reflects the companies'
improving liquidity and demonstrated ability to regain access to funding,
after the arrest of Mr. Wang Zhenhua, the largest shareholder
and former chairman of the Group," says Kaven Tsang, a Moody's
Senior Vice President.
"The Group's strengthened liquidity, a result of strong
contracted sales and the Group's preemptive measures to preserve
liquidity, will provide the companies with good headroom to buffer
against the risks that could arise from the criminal allegations against
the former chairman," adds Tsang.
Moody's explains that the Group has made progress in improving its funding
access over the last 2-3 months, as seen by its issuance
of USD bonds in December for refinancing, and its ability to secure
further new bank loans to support ongoing operations.
While a few major banks have yet to resume lending to the Group,
Moody's expects these banks will gradually resume lending this year,
if the Group can maintain strong contracted sales and good liquidity.
Such concerns are also partly mitigated by the Group's sufficient internal
resources — as seen by the Group's ample amount of cash holdings
and strong growth in contracted sales— that can fully cover its
maturing debt and committed land payments over the next 12-18 months.
In addition, Seazen Group's recently proposed share placement
to raise around USD350 million, if completed, will further
strengthen the Group's liquidity.
Moody's points out that the Group's contracted sales were strong in H2
2019, the period since allegations were made against the former
chairman. Overall, the Group registered a 22.5%
year-on-year growth in contracted sales to RMB270.8
billion in 2019.
Additionally, the Group has a sizable portfolio of investment properties
under the brand name "Wu Yue Plaza", which will generate
RMB3.0-RMB4.5 billion in rental income (excluding
income from commercial property management services) over the next two
years. Moody's expects this income can cover around 45%
of its gross interest expenses in the same period.
Moody's also expects that the credit metrics of the Group will remain
appropriate for the Ba2 CFRs, although the Group will likely step
up land acquisitions over the next 1-2 years to support business
growth, after the temporary suspension of land acquisitions in H2
2019.
The Group's financial metrics will also be supported by likely strong
growth in revenues — a result of its robust contracted sales —
and Moody's belief that the Group will maintain a disciplined approach
to land acquisitions.
Specifically, Seazen Holdings' adjusted revenue/debt and adjusted
EBIT/interest coverage — including its share in joint ventures (JVs)
— will improve to 80%-85% and around 4.0x
by 2020 from 57% and 3.0x for the 12 months to 30 June 2019.
Likewise, Seazen Group's debt leverage — as measured
by adjusted revenue/debt — and interest coverage — as measured
by adjusted EBIT/interest coverage, including its share in joint
ventures JVs — will improve to 75%-80% and
3.5x-4.0x from 54% and 2.7x,
over the same period.
Seazen Holdings' Ba2 CFR continues to reflect its strong sales execution,
large-scale operation and the growing stream of recurring rental
income from its retail malls. Additionally, the CFR has considered
the company's exposure to the regional economy of the Yangtze River Delta
and its sizable JV business exposures.
Seazen Group's Ba2 CFR mainly reflects the credit profile of its
subsidiary, Seazen Holdings; with the subsidiary accounting
for most of the Group's operations and financial profile.
There is also a close link between the two entities, as reflected
in an intercompany loan agreement, as well as the high level of
ownership by Seazen Group in Seazen Holdings.
In terms of environmental, social and governance factors,
Moody's has taken into account the concentrated ownership by Seazen Group's
key shareholder, Mr. Wang Zhenhua, who held a total
71% stake in the company as of 30 September 2019.
This risk of concentrated ownership is partly mitigated by: (1)
the presence of special committees (audit, nomination and remuneration
committees) chaired by independent non-executive directors to oversee
the company's corporate governance; (2) the company's moderate 20%-25%
dividend payout ratio over the past three years; and (3) the presence
of other internal governance structures and standards, as required
under the Corporate Governance Code for companies listed on the Hong Kong
Stock Exchange.
The liquidity profiles of Seazen Group and Seazen Holdings are good.
Moody's expects that the two companies' cash holdings and operating cash
flow will be sufficient to cover their maturing debt and committed land
payments over the next 12-18 months.
Seazen Group's Ba3 senior unsecured bond rating is lower than its
CFR by one notch because of the risk of structural subordination.
This subordination risk reflects the fact that most of Seazen Group's
claims are at the operating subsidiary level and have priority over claims
at the holding company in a bankruptcy scenario. In addition,
the holding company lacks significant mitigating factors for structural
subordination. As a result, the likely recovery rate for
claims at the holding company will be lower.
On the other hand, there is no notching for the Ba2 senior unsecured
rating of the notes guaranteed by Seazen Holdings. Although most
of the company's claims are at the operating subsidiary level, its
diversified business profile — with cash flow generation across
a large number of operating subsidiaries and different business segments,
covering both property development and property investment — mitigates
structural subordination risks.
Moody's could upgrade the two companies' ratings, if they
maintain resilient sales through the cycles, as well as strong liquidity
and prudent financial management.
Specifically, upward pressure could emerge if their (1) adjusted
revenue/debt, including their share in JVs, exceeds 85%-90%;
(2) EBIT interest coverage, including their share in JVs,
is above 4.0x, or their rental income/interest coverage exceeds
50%, with these results demonstrated on a sustained basis.
However, downward ratings pressure could emerge for the two companies
if (1) their contracted sales growth slows, or (2) credit metrics
weaken, with EBIT/interest coverage, including the companies'
share in JVs, falling below 3.0x, or adjusted revenue/debt,
including their share in JVs, falls below 70%-75%
on a sustained basis; or (3) their liquidity deteriorates,
as reflected by cash/short-term debt falling to below 1.25x.
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.
Seazen Group Limited was founded by Mr. Wang Zhenhua in 1996,
and engages primarily in residential development in China.
Seazen Holdings Co., Ltd. is a 67.1%-owned
subsidiary of Seazen Group, and accounted for most of the parent
company's operations.
As of June 2019, the Group — which comprises Seazen Group
and Seazen Holdings — had a land bank across 103 cities in China,
with a total gross floor area of 131 million square meters.
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.
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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Regulatory disclosures contained in this press release apply to the credit
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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.
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
