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Related Issuers
Rating Action:

Moody's downgrades KWG to Caa1; outlook negative

25 Apr 2022

Hong Kong, April 25, 2022 -- Moody's Investors Service has downgraded KWG Group Holdings Limited's corporate family rating (CFR) to Caa1 from B2.

At the same time, Moody's has changed the outlook to negative from ratings under review.

This concludes the rating review initiated on 1 April 2022.

"The downgrade reflects KWG's heightened liquidity risks, driven by a reduced cash position and weak operating cash flow against sizable debt maturities over the next 12-18 months," says Celine Yang, a Moody's Vice President and Senior Analyst.

"The negative outlook reflects the uncertainties over the company's ability to address its refinancing needs amid a tight funding environment," adds Yang.

RATINGS RATIONALE

Moody's expects KWG's liquidity will weaken over the next 12-18 months. The company's contracted sales will likely decline over the next 6-12 months, considering COVID-related social distancing measures in some of its key markets and weak consumer sentiment. KWG's total cash also weakened notably to RMB29 billion as of the end of 2021, from RMB45 billion as of the end of 2020, while its gross reported debt remained largely unchanged at around RMB77 billion from RMB78 billion during the same period. In addition, the company's contracted sales fell by around 40% year-on-year in 1Q 2022.

KWG has USD900 million of offshore bonds coming due in September 2022, USD700 million due in January 2023, and another RMB5.0 billion of onshore corporate bonds becoming due or puttable before the end of September 2023. Moody's expects the company will use internal resources to repay its maturing debt, due to its constrained refinancing options amid challenging funding conditions, which in turn will weaken its balance sheet liquidity. Moody's expects the company will scale down its land acquisitions and developments, as well as control expenses to preserve liquidity for debt servicing.

KWG's auditor, Ernst & Young, indicated in its financial result announcement for 2021 material uncertainty around the company's ability to continue as a going concern. Moody's expects this statement to weaken investors' confidence and the company's access to funding.

Moody's forecasts KWG's revenue/adjusted debt and adjusted EBIT/interest will remain weak at around 22%-23% and 1.5x-1.6x in the coming 12-18 months, compared to 24% and 1.6x in 2021 due to the company's expected sluggish revenue recognition and profit margin.

KWG's Caa1 CFR continues to reflect the company's strong brand name in its main operating regions and good operating track record, as well as its quality land bank primarily in tier 1 and tier 2 cities. The rating is constrained by the company's high leverage and sizable exposure to joint ventures.

In terms of environmental, social and governance (ESG) factors, Moody's has considered the concentration of KWG's ownership in its controlling shareholders, Kong Jianmin and his family, who held a stake of 63% in the company as of 30 June 2021. Moody's has also considered the company's adherence to internal governance structures and disclosure standards under the Corporate Governance Code for companies listed on the Hong Kong Stock Exchange, along with the presence of audit, remuneration and nomination committees, with the first two chaired by independent nonexecutive directors (INEDs) and the audit committee comprising solely of INEDs.

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

An upgrade of KWG's ratings is unlikely over the next 12 months, given the negative outlook.

However, Moody's could change the outlook to stable if KWG improves its liquidity and access to funding on a sustained basis.

On the other hand, Moody's could downgrade KWG's ratings if its liquidity deteriorates further.

The principal methodology used in this rating 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.

KWG Group Holdings Limited is a Chinese property developer that was founded in 1995. As of 31 December 2021, the company had a total attributable land bank of 25.5 million square meters in gross floor area (GFA) across 44 cities in China, which can support around three years of development. KWG mainly develops medium- to high-end residential properties, office buildings, shopping malls and hotels.

KWG listed on the Hong Kong Stock Exchange in July 2007. Its chairman, Kong Jianmin, and his family owned about 63% of the company as of 30 June 2021.

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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is 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_1288235.

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.

YuYing (Celine) Yang
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
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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