Hong Kong, January 10, 2022 -- Moody's Investors Service has downgraded Shimao Group Holdings Limited's
corporate family rating (CFR) to B2 from Ba3.
The rating remains on review for further downgrade.
"The rating action reflects our expectation that Shimao's liquidity
risks will be elevated, driven by its weakening access to funding
and large near-term debt maturities," says Celine Yang,
a Moody's Vice President and Senior Analyst.
Moody's downgrade also considers Shimao's slow progress on
its fundraising and refinancing activities recently, which has increased
uncertainties over the company's ability to address its refinancing
needs.
"The review for downgrade reflects the uncertainty over the company's
ability to generate new funds, through new borrowing or asset disposals,
to address all its near-term debt maturities in the coming 6-12
months amid challenging funding conditions, " adds Yang.
RATINGS RATIONALE
Shimao, at the holding company level, has a large number of
debt maturities coming due or puttable in 2022, including sizable
offshore bank loans, offshore bonds of around USD1.7 billion,
and onshore bonds of around RMB8.9 billion.
Meanwhile, Moody's believes there is uncertainty for Shimao to utilize
a significant part of its cash for debt repayment, particularly
for the cash holdings at the project and operating companies' levels.
Moody's forecasts that Shimao's contracted sales will decline notably
over the next 6-12 months, driven by weaker homebuyer confidence
and diminishing saleable resources driven by its slowdown in land acquisitions
and tight funding conditions. In October and November 2021,
Shimao's contracted sales dropped by 32% and 49%,
respectively, compared with the same period the year before.
A decline in contracted sales will weaken the company's operating cash
flow and, in turn, its liquidity.
In terms of environmental, social and governance (ESG) factors,
Moody's has considered Shimao's concentrated ownership by its key
shareholder, Mr. Hui Wing Mau, who held a 65%
stake as of 30 June 2021.
Moody's has also considered the company's established internal governance
structures and standards, as required by the Corporate Governance
Code for companies listed on the Hong Kong Stock Exchange. In particular,
the company has three independent non-executive directors (INEDs)
on its nine-member board, and its board has established three
committees with specific written terms of reference to oversee particular
aspects of the company's affairs. All three committees are composed
of INEDs only.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Moody's review will focus on (1) Shimao's liquidity, funding access,
specifically its ability to raise new funds to address its maturing debt
(including puttable bonds); and (2) the progress on its asset disposal
to improve its liquidity.
Moody's could confirm the rating if Shimao strengthens its funding access
and liquidity, demonstrates an ability to refinance or repay its
maturing debt without impairing its balance sheet liquidity, and
maintains healthy credit metrics.
On the other hand, Moody's could downgrade Shimao's rating if (1)
the company's liquidity and refinancing risks heighten; (2) its access
to onshore or offshore funding weakens; or (3) if its operating cash
flow declines materially due to falling property sales.
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.
Shimao Group Holdings Limited is a Chinese property developer that listed
on the Hong Kong Stock Exchange in July 2006. It develops residential
properties and owns a portfolio of investment properties, including
hotels. As of the end of June 2021, the company, together
with its 64%-owned Shanghai A-share listed subsidiary,
Shanghai Shimao Co., Ltd, held an attributable land
bank of 44.2 million square meters (sqm) in China. Shanghai
Shimao mainly develops commercial properties.
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
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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
