Hong Kong, December 02, 2022 -- Moody's Investors Service has downgraded Agile Group Holdings Limited's (Agile) corporate family rating (CFR) to Caa1 from B3, and the company's senior unsecured ratings to Caa2 from Caa1.
The ratings outlook on Agile remains negative.
"The downgrade and negative outlook reflect Agile's heightened liquidity and refinancing risks in view of its weak sales, limited financial flexibility, sizable refinancing needs and constrained access to funding," says Kaven Tsang, a Moody's Senior Vice President.
RATINGS RATIONALE
Moody's has assessed that Agile's liquidity will remain inadequate over the next 12-18 months, in the absence of new external financing or asset disposals to address its sizable debt maturities.
There were news reports that the company has missed a coupon payment for an exchangeable bond due on 24 November, and will defer the coupon payments for its USD700 million 8.375% senior perpetual notes due on 4 December.
While the company has a 30-day grace period to remediate the coupon payment for the exchangeable bond, and the coupon payments of the senior perpetual notes is deferrable, these developments reflect the company's weak liquidity and limited financial flexibility.
Moody's expects Agile's property sales to remain weak over the next 6-12 months amid current difficult operating conditions. This will continue to weigh on the company's operating cash flow and liquidity. In the first 10 months of 2022, the company's contracted sales declined 49% from the same period a year ago to RMB57.8 billion.
Agile has over the past 3-6 months been actively raising funds through asset disposals and equity issuances to service its maturing debt, but the scale and timing of further asset disposals are uncertain given the currently weak market sentiment and the company's still constrained access to funding.
Agile's Caa2 senior unsecured ratings on its USD notes are one notch lower than its CFR because of the risk of structural subordination. This subordination risk reflects the fact that most of Agile's claims are at the operating subsidiaries 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 expected recovery rate for claims at the holding company will be lower.
In terms of environmental, social and governance factors, Agile's weak liquidity and financial positions reflect the company's aggressive financial strategy and weak financial and liquidity management. Its delay in releasing its audited financial results for 2021 earlier this year is also a governance weakness. In addition, Moody's has considered Agile's concentrated ownership by its key shareholder, the Chen family.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of Agile's ratings is unlikely over the next 12 months, given the negative outlook.
However, positive rating momentum could emerge if Agile improves its liquidity and access to funding; repays its maturing debt without sacrificing its balance sheet liquidity; and maintains its current credit metrics through the next 12-18 months.
On the other hand, Moody's could downgrade Agile's ratings if the company's access to funding and liquidity deteriorate further, in turn further increasing its refinancing risks.
Moody's would lower the ratings on the perpetual notes – relative to Agile's CFR – if the company is likely to defer several coupon payments such that deferred coupons become substantial as a percentage of the principal amount of the notes.
The principal methodology used in these ratings was Homebuilding and Property Development published in October 2022 and available at https://ratings.moodys.com/api/rmc-documents/394515. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Agile Group Holdings Limited (Agile) is one of China's major property developers. As of 30 June 2022, the company had a land bank with a planned gross floor area of 43.49 million square meters.
REGULATORY DISCLOSURES
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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.
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
Chris Park
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
