Hong Kong, November 10, 2021 -- Moody's Investors Service has downgraded the corporate family rating (CFR)
of Kaisa Group Holdings Ltd (Kaisa) to Ca from Caa1. At the same
time, Moody's has downgraded the senior unsecured rating on the
bonds issued by Kaisa to C from Caa2.
The outlook remains negative.
"The downgrades reflect Kaisa's heightened liquidity risk and likely weak
recovery prospects for the company's creditors after it announced
on 9 November that it has missed a payment on the onshore wealth management
products guaranteed by its subsidiary," says Cedric Lai, a
Moody's Vice President and Senior Analyst.
The negative outlook reflects Moody's view that recovery prospects for
Kaisa's creditors could weaken further.
RATINGS RATIONALE
Kaisa's Ca CFR reflects the company's high liquidity risks over the next
6-12 months, limited financial flexibility and weak recovery
prospects for its creditors.
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.
The company had RMB38 billion of unrestricted cash as of the end of June
2021, but it is uncertain if it could use all of its cash resources
for debt repayment. The company's financial flexibility will also
be hurt if the company repays its debt using internal cash and if weakness
in debt capital markets persists.
Kaisa plans to use proceeds from asset sales or investments from potential
investors to service its debt. However, these fundraising
activities entail high uncertainties amid the challenging funding and
operating conditions.
Kaisa's C senior unsecured debt rating is one notch lower than the company's
Ca 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.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade is unlikely, given the negative outlook.
However, positive rating momentum could develop if Kaisa repays
its maturing debt and improves its liquidity position materially.
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 Greater Bay Area.
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.
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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The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
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3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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Cedric Lai
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
