Hong Kong, October 29, 2021 -- Moody's Investors Service has downgraded the corporate family rating (CFR)
of Kaisa Group Holdings Ltd (Kaisa) to Caa1 from B2. At the same
time, Moody's has downgraded the senior unsecured rating on the
bonds issued by Kaisa to Caa2 from B3.
The outlook has been changed to negative from rating under review.
This concludes the review for downgrade on Kaisa's ratings initiated on
18 October 2021.
"The downgrade of Kaisa's CFR to Caa1 reflects the company's heightened
refinancing risks because of its weakened funding access and sizable debt
maturities over the next 12-18 months. The approval of an
interim dividend payment at a time when liquidity preservation is crucial,
also weakens the protection to creditors," says Cedric Lai,
a Moody's Vice President and Senior Analyst.
The company's funding access has further weakened, as demonstrated
by its highly volatile offshore bond prices, following reduced investors'
and creditors' confidence amid continued negative news regarding the company.
"The negative outlook reflects the uncertainties around Kaisa's
ability to address its debt maturities over the next 6-12 months,"
adds Lai.
RATINGS RATIONALE
Kaisa's Caa1 CFR reflects the company's large amount of debt maturities
before the end of December 2022 and Moody's expectation that Kaisa
will face difficulties in raising new funds from onshore and offshore
channels to address its refinancing needs, following the recent
sharp decline in the company's offshore bond prices and the generally
tight credit environment.
Kaisa is highly reliant on the offshore bond market as its major funding
channel, which accounted for 58% of its total debt as of
30 June 2021. In particular, the company had USD3.2
billion of offshore bonds maturing or becoming puttable before the end
of December 2022.
Kaisa has a solid market position and quality land bank in higher-tier
cities in the Greater Bay Area (GBA) and a solid pipeline from its urban
redevelopment projects. But Moody's expects contracted sales to
decline over the next 6-12 months because of weaker consumer sentiment
amid tight funding conditions. This will weaken the company's operating
cash flow and in turn its liquidity.
The company had RMB38 billion of unrestricted cash as of the end of June
2021, but it remains uncertain if it could use such cash resources
for debt repayment. In addition, the company has increasing
exposures to joint ventures, which could limit its ability to control
its cash flow. The company's financial flexibility will also be
hurt if the weakness in debt capital markets persists.
Kaisa's Caa2 senior unsecured debt rating is one notch lower than the
company's Caa1 CFR due to structural subordination risk. The subordination
risk reflects the fact that the majority of Kaisa's claims are at its
operating subsidiaries and, in the event of a bankruptcy,
have priority over claims at the holding company. In addition,
the holding company lacks significant mitigating factors for structural
subordination. Consequently, the expected recovery rate for
claims at the holding company will be lower.
In terms of environmental, social and governance (ESG) considerations,
Moody's has factored in the company's history of debt restructuring and
share suspension, as well as high debt leverage. In addition,
the company has a concentrated shareholder structure, with its founder,
Kwok Ying Shing, and his family members owning a 39.01%
stake in the company as of the end of June 2021. The company's
approval of the payment of an interim dividend at a time when preserving
liquidity is critical also raises concerns over the company's governance
standards and that the company is prioritizing the interest of shareholders
over creditors.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade is unlikely given the negative outlook.
However, the outlook could return to stable if Kaisa improves its
access to funding, maintains stable operating cash flow and strengthens
its liquidity.
On the other hand, Moody's could downgrade the ratings if Kaisa's
access to funding and liquidity deteriorate 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.
Kaisa Group Holdings Ltd engages in real estate development in China,
including urban redevelopment projects in the GBA. As of 30 June
2021, the company's land bank comprised an aggregate gross floor
area of 31.1 million square meters of saleable resources across
over 50 cities in China.
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Cedric Lai
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Franco Leung
Associate Managing Director
Corporate Finance Group
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Gary Lau
MD - Corporate Finance
Corporate Finance Group
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Moody's Investors Service Hong Kong Ltd.
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