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Rating Action:

Moody's downgrades Guangzhou R&F to B2 and R&F HK to B3; reviews ratings for further downgrade

 The document has been translated in other languages

03 Sep 2021

Hong Kong, September 03, 2021 -- Moody's Investors Service has downgraded to B2 from B1 the Corporate Family Rating (CFR) of Guangzhou R&F Properties Co., Ltd. (Guangzhou R&F), and to B3 from B2 the CFR of R&F Properties (HK) Company Limited (R&F HK).

At the same time, Moody's has placed the ratings under review for further downgrade.

The rating outlooks were negative before the review for further downgrade.

"The downgrade of Guangzhou R&F's CFR to B2 reflects the company's increased refinancing risks because of its weakened access to offshore funding and sizable amount of maturing debt," says Kaven Tsang, a Moody's Senior Vice President.

"We expect the company to continue focusing on generating internal cash to repay its maturing debts and fund its operations over the next 12-18 months. However, the review for downgrade reflects the uncertainty over the company's ability to generate enough operating cash flow to materially reduce its debt to more sustainable levels, given the challenging operating and funding environments," adds Tsang.

RATINGS RATIONALE

Guangzhou R&F's B2 CFR reflects the company's long operating history in China's property market, quality portfolio of urban redevelopment projects, and geographically diversified land bank in China. The CFR also reflects the company's modest financial metrics, despite the company's deleveraging efforts, and weak liquidity with high refinancing needs.

Guangzhou R&F's liquidity is weak. The company's cash holdings of RMB28.8 billion (including RMB16 billion restricted cash) as of June 2021 and estimated operating cash flows through the end of 2022 will not be sufficient to cover its debt repayments in the next 12-18 months. Therefore, the company will have to rely on new financing or asset sales to fund its upcoming debt maturities.

While Moody's expects the company to maintain its access to onshore bank funds, its weakened access to onshore and offshore debt capital markets will hinder the company's ability to raise new debt at reasonable costs to repay its maturing bonds. The use of internal resources to repay maturing bonds will reduce the company's funding available for its operations, which will restrain its business operations.

The downgrade of R&F HK's CFR to B3 reflects the weakened ability of its parent to provide financial and operational support in times of need and the subsidiary's weak standalone credit quality with a small scale and high exposure to the volatile operating environment of the hotel business.

R&F HK's CFR B3 rating incorporates its standalone credit profile and a one-notch uplift based on Moody's assessment of support from Guangzhou R&F in times of need, because of (1) Guangzhou R&F's full ownership of R&F HK and its intention to maintain its stake; (2) R&F HK's role as the primary platform for the group to raise funds from offshore banks and capital markets to invest in property projects in China, as well as for overseas investments; (3) Guangzhou R&F's track record of financial support to R&F HK, including the provision of keepwell deeds and equity interest purchase undertakings of R&F HK's guaranteed bonds in recent years; and (4) the reputational risks for Guangzhou R&F if R&F HK were to default.

R&F HK's liquidity position is also weak. The company relies on support from Guangzhou R&F to access funding.

In terms of environmental, social and governance (ESG) factors, Moody's has considered the concentrated ownership of Guangzhou R&F's key shareholders.

Nevertheless, Guangzhou R&F's nine-member board of directors includes three independent non-executive directors and two non-executive directors. In addition, the company is subject to other internal governance structures and standards required under the Corporate Governance Code for companies listed on the Hong Kong Stock Exchange.

The company is transparent in disclosing its business and financial activities. Its financial management favors the use of debt leverage that maximizes return to shareholders, and its dividend payouts are higher than many of its rated peers'.

Moody's review will focus on (1) Guangzhou R&F's access to funding, its liquidity and refinancing risks, specifically its ability to address its maturing debt (including puttable bonds) in a timely manner; and (2) the company's ability to sustain stable sales and operating cash flow generation to reduce its leverage on a sustained basis.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could downgrade the rating if Guangzhou R&F's liquidity and refinancing risks heighten, its access to onshore bank funds weakens, or if the company fails to materially reduce its debt to more sustainable levels.

An upgrade of the ratings is unlikely given the review for downgrade. However, Moody's could confirm the ratings if Guangzhou R&F shows improvement in its access to funding, materially reduces its refinancing risks and significantly lowers its debt to more sustainable levels.

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.

Established in 1994 and listed on the Hong Kong Stock Exchange in 2005, Guangzhou R&F Properties Co., Ltd. is a large developer in China's residential and commercial property sector. As of June 2021, the company had a land bank of 55.5 million square meters (sqm) in total saleable area, spread across 92 cities in China and six cities overseas, including Australia, the UK, Malaysia, Korea, and Cambodia. Mr. Li Sze Lim and Mr. Zhang Li are the company's co-founders and owned 28.97% and 27.50% equity interests, respectively, as of 30 June 2021.

R&F Properties (HK) Company Limited (R&F HK) and its subsidiaries are principally engaged in the development and sale of properties, property investments and hotel operations in China. The company was established in Hong Kong on 25 August 2005. It serves as an offshore funding vehicle and holding company for some of Guangzhou R&F's property projects in China.

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.

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.

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These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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

No Related Data.
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