Hong Kong, April 30, 2021 -- Moody's Investors Service has downgraded to B3 from B2 the corporate
family rating (CFR) and senior unsecured rating of the exiting notes of
Golden Wheel Tiandi Holdings Company Limited.
At the same time, the outlook was changed to negative from stable.
"The downgrade reflects Golden Wheel's heightened refinancing risk
given its weak liquidity position and sizable debt maturing or becoming
puttable over the coming 12-18 months ," says Cedric Lai,
a Moody's Vice President and Senior Analyst.
The company's cash to short-term debt deteriorated to 40%
at the end of 2020 from 60% at the end of 2019 due to a decline
in cash holdings and an increase in short-term debt, mainly
driven by its weak operating cash flow.
"Meanwhile, the negative outlook reflects our expectation that the
company's liquidity profile will remain weak over the next 12-18
months," adds Lai.
RATINGS RATIONALE
Golden Wheel's B3 CFR reflects its (1) track record in developing integrated
commercial and residential property projects in Nanjing; and (2)
stable recurring income from investment properties.
At the same time, the B3 rating reflects Golden Wheel's credit
weaknesses including its small operating scale, and its weak liquidity
and volatile credit metrics because of its size and geographic concentration.
Moody's expects Golden Wheel's adjusted EBIT/interest and revenue/adjusted
debt to improve to around 1.0x-1.1x and 32%-35%
respectively over the next 12-18 months from the weak levels of
0.7x and 22% in 2020.
Meanwhile, Moody's also forecasts that Golden Wheel's rental income
will grow moderately to RMB220 million-RMB240 million over the
next 12-18 months from RMB208 million in 2020, recovering
from the impact from coronavirus last year. Its recurring income/interest
coverage will likely improve to 0.4x during the same period compared
with 0.3x in 2020.
Golden Wheel's liquidity position is weak. Moody's expects that
the company's cash holdings and operating cash flow will be insufficient
to cover its short-term debt, including USD200 million of
offshore bonds maturing and USD255 million of offshore bonds becoming
puttable in the first quarter of 2022. However, Moody's believes
that the risk is partly tempered by the company's track record of accessing
diversified funding channels, including bank and capital markets
for debt refinancing.
Furthermore, Golden Wheel's investment properties in China
and Hong Kong provide the company with an alternate source of liquidity
in case of financial stress, as it could sell these properties to
meet its debt obligations.
Golden Wheel's senior unsecured rating is unaffected by subordination
to claims at the operating company level, because the company's
creditors benefit from its diversified business profile, including
in particular, the cash flow generated from the company's investment
properties portfolio. Such business diversification mitigates the
structural subordination risk.
In terms of environmental, social and governance (ESG) considerations,
Golden Wheel's CFR considers the company's concentrated ownership by its
key shareholder, Wong Yam Yin's family, who held a 40.60%
stake as of the end of 2020. Moody's has also considered (1) the
presence of four independent nonexecutive directors on Golden Wheel's
eleven-member board of directors, (2) the fact that independent
nonexecutive directors chair both the audit and remuneration committees;
(3) Golden Wheel's moderate 15%-20% dividend payout
ratio over the past three years; and (4) 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.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, a rating upgrade is unlikely.
However, the outlook could return to stable if the company improves
its liquidity substantially, with its cash/short term debt ratio
rising above 1.0x on a sustained basis.
On the other hand, the ratings could be downgraded if the company's
liquidity deteriorates further.
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.
Listed on the Hong Kong Stock Exchange in January 2013, Golden Wheel
Tiandi Holdings Company Limited is an integrated commercial and residential
property developer, owner and operator, focused on projects
in Jiangsu and Hunan provinces. Its projects are either connected
or close to metro stations or other transportation hubs.
The company also engages in the leasing and operational management of
shopping malls owned by third parties.
As of 31 March 2021, the company's land bank totaled 1.38
million square meters in gross floor area, situated in Nanjing,
Yangzhou, Changsha, Wuxi, Zhuzhou and Hong Kong.
REGULATORY DISCLOSURES
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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
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
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
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