Hong Kong, October 18, 2021 -- Moody's Investors Service has downgraded to B3 from B2 the corporate family
rating (CFR) of Guangzhou R&F Properties Co., Ltd.
(Guangzhou R&F), and to Caa1 from B3 the CFR of R&F Properties
(HK) Company Limited (R&F HK).
The outlook is negative, and the ratings had been under review prior
to this downgrade.
This rating action concludes the review for downgrade on the two companies'
ratings initiated on 3 September 2021.
"The downgrades reflect Guangzhou R&F's weak liquidity and high
refinancing risks because of its sizable debt maturing over the next 6-12
months and its weakened access to offshore funding amid tight funding
conditions," says Kaven Tsang, a Moody's Senior
Vice President.
"The negative outlook reflects uncertainty around the company's
ability to generate enough cash flow amid tough business conditions to
repay its maturing debts over the next 6-12 months, despite
the company's focus on accelerating property sales and asset disposals,"
adds Tsang.
RATINGS RATIONALE
Guangzhou R&F's B3 CFR reflects the company's long operating history
in China's property market, quality portfolio of urban redevelopment
projects, geographically diversified land bank in China, and
its shareholders' demonstrated support to the company. 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. While the major shareholders'
commitment to provide up to RMB10.4 billion would alleviate Guangzhou
R&F's refinancing pressure, the company will still have
to rely on new financing or asset sales to address its debt maturities
over the next 6-12 months.
Moody's expects the company to maintain its access to onshore bank funds,
but 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 timing of asset disposals is also
highly uncertain given the weak market sentiment and tight funding conditions.
The downgrade of R&F HK's CFR to Caa1 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 Caa1 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, and its aggressive financial management that favors
the use of debt to maximize shareholder returns.
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. Moody's
has also considered the key shareholders' track record of providing
financial support to the company.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could downgrade Guangzhou R&F's rating if its 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 negative outlook.
However, the outlook could be revised to stable if Guangzhou R&F
improves its access to funding, materially reduces its refinancing
risks and significantly lowers its debt to more sustainable levels.
Moody's could downgrade the rating of R&F HK if Guangzhou R&F's
rating is downgraded; there is a reduction in the ownership by or
a weakening in support from Guangzhou R&F; or R&F HK's leverage
and liquidity deteriorate substantially.
An upgrade of R&F HK's rating is unlikely given the negative outlook.
However, Moody's could revise the outlook to stable if Guangzhou
R&F's outlook is revised to stable.
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 SAR, China 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.
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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
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
