Hong Kong, October 17, 2022 -- Moody's Investors Service has downgraded CIFI Holdings (Group) Co. Ltd.'s corporate family rating (CFR) to Ca from B3 and senior unsecured rating to C from Caa1.
The outlook remains negative.
"The rating downgrade and the negative outlook reflect CIFI's heightened liquidity and default risk, as well as weakened recovery prospects for the company's creditors driven by the company's liquidity stress and pressure on its operating performance," says Cedric Lai, a Moody's Vice President and Senior Analyst.
RATINGS RATIONALE
On 13 October 2022, CIFI announced a delay in the remittance of cash to meet certain scheduled offshore interest and amortization payments [1]. This may trigger default on its scheduled debt repayment obligations. Moody's believes CIFI will unlikely be able to raise sizable new funds to address the repayment for all of its maturing debt, including puttable onshore and offshore bonds of around RMB8.0 billion by the end of 2023.
CIFI's unrestricted cash balance has significantly reduced to RMB31.1 billion as of the end of June 2022 from RMB46.5 billion as of the end of 2021, due to lower sales and repayment of some maturing debt using internal cash. Moody's expects the company would have to rely on asset sales or investments from potential investors to generate funds for debt servicing. However, these fundraising activities entail high uncertainties amid the challenging market dynamics.
Moody's forecasts CIFI's contracted sales will decline significantly to around RMB110 billion in 2022 and RMB95 billion in 2023, from around RMB247 billion in 2021, driven by the weak market conditions and lower homebuyers' confidence in the company's products. CIFI's contracted sales significantly decreased by 47% during the first eight months in 2022 to RMB94.3 billion compared with the same period in 2021.
CIFI's Ca CFR reflects the company's high liquidity risks over the next 6-12 months, constrained financial flexibility and weak recovery prospects for its creditors.
The C senior unsecured debt rating is one notch lower than the CFR due to structural subordination risk. The majority of CIFI's claims are at its operating subsidiaries and have priority over claims at the holding company in a liquidation scenario. In addition, the holding company lacks significant mitigating factors for structural subordination. Consequently, the expected recovery rate for claims at the holding company will be lower.
In terms of environmental, social and governance (ESG) factors, Moody's has considered CIFI's concentrated ownership as its controlling shareholders, Lin Zhong and his family members, collectively held a 53.2% stake in the company as of 31 August 2022. Moody's considers that CIFI's financial strategy and risk management have deteriorated, demonstrated by the delay in the remittance of cash to meet its offshore interest and amortization payments due to the public holiday in China. This weakening governance practice also drives today's rating action.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could downgrade CIFI's CFR if the recovery prospects for CIFI's creditors weakens further.
An upgrade is unlikely given the negative outlook.
However, positive rating momentum could develop if CIFI repays its maturing debt obligations and improves its liquidity position materially.
The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018 and available at https://ratings.moodys.com/api/rmc-documents/66220. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
CIFI Holdings (Group) Co. Ltd. (CIFI) was founded in 2000 and incorporated in the Cayman Islands in May 2011. It listed on the Hong Kong Stock Exchange in November 2012. As of 31 August 2022, it was 53.2% owned by the Lin family.
REGULATORY DISCLOSURES
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REFERENCES/CITATIONS
[1] CIFI's filings to Hong Kong Stock Exchange 13-Oct-2022
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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.
Cedric Lai
Vice President - Senior 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
