Hong Kong, October 09, 2019 -- Moody's Investors Service ("Moody's") has today confirmed the following
ratings:
• Future Land Development Holdings Limited's ("Future Land
Development") Ba2 corporate family rating (CFR) and Ba3 senior unsecured
rating;
• Seazen Holdings Co., Ltd.'s ("Seazen")
Ba2 CFR, and
• The Ba2 backed senior unsecured rating for the bonds issued by
New Metro Global Limited and guaranteed by Seazen.
Seazen is a 67.1%-owned subsidiary of Future Land
Development. The two companies are collectively referred to as
the Future Land Group.
Moody's has changed the outlooks for all the issuers above to negative
from "rating under review".
These rating actions conclude Moody's review initiated on 15 July
2019.
RATINGS RATIONALE
"The ratings confirmation reflects our view that Future Land Group's
good contracted sales growth and liquidity profile will provide it with
certain financial buffers for the risks associated with the criminal allegations
against Mr. Wang Zhenhua, the largest shareholder and former
chairman of the Future Land Group," says Kaven Tsang,
a Moody's Senior Vice President.
"However, the negative outlooks reflect the risks associated
with a change of control or deterioration in the group's operations
and funding access, if there is further negative news on Mr.
Wang's court case," adds Tsang.
Moody's notes that the group's funding access has been constrained
to a certain extent after the allegations against Mr. Wang surfaced,
as banks and investors remain cautious about the impact of the incident
on the group's operations and financial profile. Such concerns
are partly mitigated by the group's sufficient internal resources
— as seen by the group's cash holding, contracted sales
growth and recent asset sales — that can fully cover its maturing
debt and committed land payments over the next 12-18 months.
While Moody's notes that a few onshore banks have restarted financing
to the group over the past 2-3 months, a broader recovery
of funding access to the major Chinese banks as well as the debt capital
markets remains uncertain and could take time. Such uncertainties
are reflected in the negative outlooks.
Moody's notes that Future Land Group's contracted sales remain
strong over the last two months; the period since allegations were
made against the former chairman. Contracted sales for July and
August totaled RMB24.5 billion for each month, representing
an average year-on-year growth of 16.7% for
the two months.
For the first eight months of 2019, the Future Land Group registered
a 24.8% year-on-year growth in contracted
sales to RMB171.5 billion. This good contracted sales performance
helped support the group's liquidity.
Moody's expects that the credit metrics of the Future Land Group
will improve over the next 12-18 months, because of the group's
planned slowdown in expansion and Moody's expectation of strong
revenue recognition, given the strong contracted sales over the
past 1-2 years.
Specifically, Future Land Development'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 70%-75%
and 3.0x-3.5x by 2020 from 54% and 2.7x,
respectively, for the 12 months to June 2019.
Likewise, Seazen's adjusted revenue/debt and adjusted EBIT/interest
coverage — including its share in joint ventures (JVs) — will
improve to 75%-80% and 3.5x-4.0x
from 57% and 3.0x, respectively, over the same
period.
Such financial metrics remain appropriate for the two companies'
Ba2 CFRs.
Seazen's 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.
Future Land Development's Ba2 CFR mainly reflects the credit profile of
its subsidiary, Seazen, which accounts for most of its 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 Future Land Development in Seazen.
In terms of environmental, social and governance factors,
Moody's has taken into account the concentrated ownership by Future Land
Development'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.
Liquidity of both Future Land Development and Seazen is adequate and good,
respectively. 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.
Future Land Development'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 Future Land Development's
claims are at the operating subsidiaries 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. 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 is unlikely to upgrade Future Land Development's and
Seazen's ratings, given the negative outlooks on the ratings.
Nevertheless, Moody's could revise the outlooks to stable,
if the group demonstrates a recovery of its access to funding from the
banks as well as the debt capital markets at reasonable funding costs,
sustains resilient sales through the cycles, and maintains adequate
or good liquidity.
However, downward ratings pressure could emerge if (1) the group's
contracted sales growth slows, or (2) its credit metrics weaken,
with EBIT/interest coverage, including its share in JVs, falling
below 3.0x, or adjusted revenue/debt, including its
share in JVs, falling below 70%-75% on a sustained
basis, or (3) the group's liquidity deteriorates, as
reflected by an inability to recover its access to funding, its
funding costs increase materially, or cash/short-term debt
falls to below 1.25x; with all three factors occurring 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.
Future Land Development Holdings Limited was founded by Mr. Wang
Zhenhua in 1996, and engages primarily in residential development.
Seazen Holdings Co., Ltd. is a 67.1%-owned
subsidiary of Future Land Development, and accounted for most of
Future Land Development's operations.
As of June 2019, the Future Land Group — which comprises Future
Land Development Holdings and Seazen — 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.
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
for Designating Non-Participating Rated Entities.
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
