Hong Kong, February 23, 2022 -- Moody's Investors Service has downgraded the corporate family rating
(CFR) of Shimao Group Holdings Limited (Shimao) to Caa1 from B2.
At the same time, Moody's has changed the outlook to negative
from ratings under review.
This concludes the most recent rating review initiated on 10 January 2022.
"The downgrade of Shimao's CFR to Caa1 reflects the company's heightened
liquidity risks over the next 6-12 months given the company's
slower-than-expected fundraising progress to address its
large upcoming debt maturities," says Celine Yang, a Moody's
Vice President and Senior Analyst.
"The negative outlook reflects Shimao's weak debt-repayment ability
over the same period," adds Yang.
RATINGS RATIONALE
Shimao has disposed various assets since December 2021, raising
around RMB9 billion cash for debt repayment. However, Moody's
estimates that the company will still face a significant liquidity gap
considering its sizable debt maturity.
At the holding company level, Shimao has large debt maturities becoming
due or puttable by the end of 2022, including offshore bank loans,
offshore bonds totaling around USD1.7 billion, and onshore
bonds of around RMB6.9 billion.
Moody's estimates that a significant part of Shimao's cash
was held at the project level, which will be used for project-level
debt repayment and construction expenses. As a result, Moody's
expects Shimao will not have sufficient cash at the holding company level
to service its maturing debt, particularly its offshore loans and
bonds, absent any new fundraising activities amid the tight funding
environment and weak investor confidence.
Moody's forecasts the company's contracted sales will reduce
significantly in 2022 and 2023 from RMB269.1 billion in 2021,
which had declined 10.4% from 2020 levels. The expected
drop in contracted sales amid the challenging operating environment and
the company's diminished saleable resources due to ongoing assets
disposal will weaken the company's operating cash flow, and
in turn, its liquidity. The size and scale of the company
will also shrink if further assets disposal plan materialized.
In terms of environmental, social and governance (ESG) factors,
Moody's has considered Shimao's weak liquidity management.
Moody's has also considered Shimao's concentrated ownership,
given its key shareholder Mr. Hui Wing Mau's 65% shareholding
of Shimao as of 30 June 2021, as well as 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
An upgrade is unlikely given the negative outlook.
However, the outlook could return to stable if Shimao improves its
liquidity substantially.
On the other hand, Moody's could downgrade the company's rating
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.
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
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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
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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
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