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Rating Action:

Moody's downgrades Modern Land to Caa2/Caa3; ratings on review for further downgrade

11 Oct 2021

Hong Kong, October 11, 2021 -- Moody's Investors Service has downgraded the corporate family rating (CFR) of Modern Land (China) Co., Limited (Modern Land) to Caa2 from B2. At the same time, Moody's has downgraded to Caa3 from B3 the senior unsecured rating on the bonds issued by Modern Land.

Moody's has also placed all the ratings on review for further downgrade.

The outlook has been changed to ratings under review from stable.

"The downgrade follows Modern Land's proposed consent solicitation to seek its bondholders' consent to defer the repayment of part of its USD250 million notes due on 25 October 2021, reflecting its rapidly deteriorating liquidity," says Celine Yang, a Moody's Vice President and Senior Analyst.

"The review for downgrade reflects the uncertainty over the company's ability to repay all of its debt maturity in the coming 6-12 months," adds Yang.

RATINGS RATIONALE

On 11 October 2021, Modern Land announced a solicitation of consents to obtain the requisite consent from bondholders to amend the indenture to extend the maturity date of its outstanding USD250 million bond to 25 January 2022 from 25 October 2021. It also sought to (1) shorten the notice period of optional redemption to redeem the bond; and (2) redeem USD87.5 million (equivalent to round 35% of the outstanding principal) of the bond on the maturity date of 25 October 2021.

The announced consent solicitation will require delivered consent from noteholders of not less than 90% in aggregate principal amount of the outstanding notes, and will expire on 20 October 2021.

The consent solicitation reflects Modern Land's very tight liquidity position despite its reported unrestricted cash on hand of RMB13.6 billion as of end of June 2021.

Moody's expects the company's cash holdings and operating cash flow will be insufficient to cover its debt maturities and committed land premiums in the next 12-18 months, given an expected deterioration in its operations amid weak market conditions, as reflected in the decline of nationwide property sales. The sharp declines in the company's bond and share prices recently also limit its access to capital market funding for refinancing.

Modern Land's Caa2 CFR reflects the company's niche in marketing and selling comfortable and eco-friendly homes. However, the rating is constrained by the company's weak liquidity and financial metrics, as well as constrained funding access and significant exposure to non-bank borrowings.

Moody's notes that Modern Land has said its controlling shareholders, Mr. Zhang Lei and Mr. Zhang Peng, plan to provide a shareholder loan of around RMB800 million within the next two to three months.

The proposed shareholder loan demonstrates the shareholders' support and will alleviate part of the company's liquidity pressure, if completed. However, the timing of executing the support remains uncertain.

In terms of environmental, social and governance (ESG) considerations, Moody's has considered the company's weak financial management.

The rating also considered the company's concentrated ownership by its key shareholders by its founder and chairperson, Zhang Lei, who held around a 66.1% stake as of the end of June 2021.

Modern Land's Caa3 senior unsecured debt rating is one notch lower than the company's Caa2 CFR due to structural subordination risk. The subordination risk refers to the fact that the majority of Modern Land's claims are at its operating subsidiaries and have priority over claims at the holding company in a bankruptcy scenario. 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.

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

Moody's will review (1) the result of the announced consent solicitation and the associated credit implications on Modern Land, and (2) Modern Land's abilities to restore its liquidity position through repaying or refinancing the upcoming debt maturities over the next 12-18 months, including the USD250 million due on 25 October 2021, the USD200 million due on 26 February 2022 and the USD300 million due on 13 November 2022.

Moody's could downgrade the ratings further if Modern Land fails to secure consent from bondholders to extend the debt maturity of its USD250 million bond, or if the recovery prospects of the company's creditors deteriorate.

An upgrade of the ratings is unlikely, given the review for downgrade. However, Moody's could confirm the ratings if Modern Land materially improves its liquidity and access to funding.

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.

Modern Land (China) Co., Limited was founded in Beijing in 2000 by Mr. Zhang Lei, who is the company's current chairman. The company specializes in developing green housing units and is among the few early leaders in China's green and eco lifestyle market.

Modern Land was listed on the Hong Kong Stock Exchange in July 2013. As of June 2021, the company had a gross land bank of around 16.8 million square meters in terms of gross floor area.

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

These ratings are 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_1288435.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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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