Hong Kong, December 17, 2021 -- Moody's Investors Service has downgraded the corporate family ratings
(CFR) of Guangzhou R&F Properties Co., Ltd. to
Caa2 from B3 and R&F Properties (HK) Company Limited (R&F HK)
to Caa3 from Caa1.
The rating outlooks for both companies remain negative.
"The rating downgrade of Guangzhou R&F following its proposed consent
solicitation and tender offer to its noteholders, which is considered
as distressed exchange" says Alfred Hui, a Moody's Analyst.
"The negative outlook reflects the company's weak liquidity with high
uncertainties over its ability to generate enough cash flow to repay its
maturing debts over the next 6-12 months amid challenging operating
and funding conditions, despite the company's plans to accelerate
property sales and asset disposals," adds Hui.
The rating downgrade of R&F HK reflects the company's heightened
liquidity risk and the weakened ability of its parent, Guangzhou
R&F, to provide timely financial and operational support.
RATINGS RATIONALE
On 15 December 2021, Guangzhou R&F proposed a consent solicitation
and tender offer to its bondholders for its USD725 million bonds with
original maturity on 13 January 2022. The proposal provides two
options to bondholders, involving a haircut to principal repayments
or a bond maturity extension.
Moody's views the proposed consent solicitation and tender offer
to be a form of distressed exchange, given this will create economic
losses for creditors. Moody's believes that the intention
of the consent solicitation and tender offer is likely to avoid a default,
considering Guangzhou R&F's weak liquidity to address its maturing
debt.
Moody's expects Guangzhou R&F's cash balance, together
with its operating cash flow, will not be sufficient to cover its
sizable maturing debt over the next 12 months. The company will
have to rely on new financing or asset sales to address its debt maturities
over the next 12 months, but asset sales entail execution risks
and high uncertainties, given the volatile market conditions.
Moody's expects Guangzhou R&F's contracted sales to weaken
over the next 6-12 months, driven by weaker homebuyers'
confidence and tight funding conditions. This will in turn reduce
its operating cash flow for debt repayment.
Guangzhou R&F's Caa2 CFR reflects the company's weak liquidity
with high refinancing needs over the next 12-18 months, and
Moody's expectation that the company will face difficulties in raising
new funds from onshore and offshore channels to address its refinancing
needs amid tight funding conditions.
R&F HK's CFR Caa3 rating reflects its weak liquidity, weak standalone
credit quality with a small scale, high exposure to the volatile
operating environment of the hotel business and its parent's weaker
ability to provide support.
In terms of environmental, social and governance (ESG) considerations,
Moody's has considered Guangzhou R&F's concentrated ownership in its
key shareholders, and its aggressive financial management that favors
the use of debt to maximize shareholder returns. Moody's has also
considered the company shareholders' record of providing financial support
to the company.
In addition, Moody's considers that Guangzhou R&F is subject
to internal governance structures and standards required by 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
Moody's could downgrade Guangzhou R&F's rating if the company's
liquidity and refinancing risks heighten, or if the recovery prospects
for its creditors deteriorate.
An upgrade of the ratings is unlikely, given the negative outlook.
However, Moody's could revise the outlook to stable if Guangzhou
R&F improves its funding access and materially reduces its refinancing
risks.
Moody's could downgrade R&F HK's rating if Guangzhou R&F's
rating is downgraded.
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 rating outlook returns 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 in 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% in equity interest, 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 investment 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.
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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Alfred Hui
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
