Hong Kong, September 07, 2021 -- Moody's Investors Service has downgraded the Corporate Family Rating
(CFR) and senior unsecured ratings of China Evergrande Group (Evergrande),
the CFRs of Hengda Real Estate Group Company Limited and Tianji Holding
Limited, and the backed senior unsecured ratings of Scenery Journey
Limited.
The affected ratings are as follows:
-- Evergrande's CFR has been downgraded to Ca from Caa1,
and its senior unsecured ratings have been downgraded to C from Caa2;
-- Hengda's CFR has been downgraded to Ca from Caa1;
-- Tianji's CFR has been downgraded to C from Caa2;
and
-- Scenery Journey's backed senior unsecured ratings have
been downgraded to C from Caa2.
The backed senior unsecured rating on the notes issued by Scenery Journey
are guaranteed by Tianji. The notes are also supported by a keepwell
deed and a deed of equity interest purchase undertaking between Hengda,
Tianji, Scenery Journey and the bond trustee.
The outlook on the ratings remains negative.
"The downgrades reflect Evergrande's heightened liquidity and default
risks given its sizable amount of maturing debt over the next 6-12
months," says Cedric Lai, a Moody's Vice President and Senior
Analyst.
"The downgrades also reflect the weak recovery prospects of Evergrande's
creditors, if there is a default," adds Lai.
The negative outlook reflects Moody's view that the recovery prospects
of Evergrande's creditors could weaken further if the company defaults
on its maturing debt.
RATINGS RATIONALE
Evergrande's Ca CFR reflects the company's high liquidity risks
over the next 6-12 months, limited financial flexibility
and weak recovery prospects for its creditors.
Evergrande's unrestricted cash on hand of RMB86.8 billion as of
end June 2021 is not sufficient to cover its short-term debt and
maturing long-term debt over the next 12 months. In addition,
the company will unlikely be able to raise sufficient new funds for refinancing
given its deteriorated funding access to onshore and offshore markets.
Evergrande will have to rely on asset sales or investments from potential
investors to generate funds for debt servicing, but these fundraising
activities entail high uncertainties.
Evergrande's C senior unsecured rating is one notch below its CFR,
reflecting the lower expected recovery rate for its senior unsecured creditors
due to structural subordination. This risk reflects the fact that
most of the 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 core subsidiary and majority owned by Evergrande, Hengda's
credit profile is closely linked with that of Evergrande, in our
view.
Tianji's C CFR and the C senior unsecured rating on the notes guaranteed
by Tianji reflect its weak standalone credit profile, high liquidity
risk over the next 6-12 months and low recovery value.
In terms of environmental, social and governance (ESG) considerations,
Moody's has considered Evergrande's weak financial management, given
that its financial policy favors the use of debt leverage that maximizes
returns to shareholders.
The rating also considered Evergrande's concentrated ownership by its
key shareholders, Hui Ka Yan and his wife, who held a 77%
stake in the company as of the end of 2020.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade is unlikely given the negative outlook.
However, positive rating momentum could develop if Evergrande repays
its maturing debt 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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
China Evergrande Group (Evergrande) is a developer in China and was founded
in 1996 in Guangzhou. The company has rapidly expanded its business
across China over the past few years. As of June 2021, its
land bank totaled 214 million square meters in gross floor area.
Hengda Real Estate Group Company Limited (Hengda) is the property arm
and flagship subsidiary of Evergrande. The company was also founded
in 1996 in Guangzhou, and has rapidly expanded its business across
the country over the past few years.
Evergrande is Hengda's largest shareholder with a 60% share as
of December 2020.
Incorporated in Hong Kong in 2009, Tianji Holding Limited is an
offshore holding company that houses some of Hengda's property projects
in China and overseas, including Hengda's Hong Kong headquarters.
Hengda owns 100% of Tianji, which owns 100% of Scenery
Journey Limited.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions in the disclosure form. Moody's Rating Symbols and
Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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same series, category/class of debt, security or pursuant
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support provider and in relation to each particular credit rating action
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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
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The first name below is the lead rating analyst for this Credit Rating
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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
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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
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
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