Hong Kong, November 05, 2018 -- Moody's Investors Service has downgraded to B3 from B2 the corporate family
rating of Tahoe Group Co., Ltd (Tahoe), and to Caa1
from B3 the backed senior unsecured rating of the notes issued by Tahoe
Group Global (Co.,) Limited — a wholly owned subsidiary
of Tahoe — and guaranteed by Tahoe.
The outlook on all ratings is negative.
RATINGS RATIONALE
"The rating downgrade reflects Tahoe's weak financial management
and its heightened debt-refinancing risk over the next 12-18
months because of weaker-than-expected cash collections
from property sales and high levels of maturing debt over the next 12-18
months," says Wenhan Chen, a Moody's Assistant
Vice President and Analyst.
As of September 2018, Tahoe had cash of RMB17.4 billion,
which could not fully cover its short-term debt of RMB64.7
billion as of the same date, onshore bonds of RMB10.5 billion
puttable by the end of 2019, and outstanding land premium payments.
The company's cash/short-term debt ratio further declined
to 27% as of September 2018 from 39% at both the end of
June 2018 and the end of December 2017.
Tahoe is actively seeking new capital from its existing funding channels
and potentially alternative liquidity sources to meet its refinancing
needs. If the company fails to secure new financing in the next
few months, its ratings will come under further downgrade pressure.
Tahoe's slow cash collection is a result of its focus on selling
mid-to-high-end properties in major cities.
In the case of such properties, developers require a long time to
register sales and obtain mortgage disbursements from banks, given
tight regulatory controls, especially in the major cities.
Moody's expects Tahoe's debt leverage, as measured by
revenue/adjusted debt, to remain weak at around 24% over
the next 12-18 months, compared with 18% for the 12
months ended June 2018 and 17% at the end of 2017.
Its interest coverage, as measured by EBIT/adjusted interest,
will also stay weak at 1.3x- 1.4x over the next 12
-18 months, compared with 1.4x in 2017, given
the company's high debt leverage and increasing cost of borrowings.
These levels place the company's rating at the low B level.
Tahoe's B3 CFR reflects the company's large business scale relative to
many B-rated Chinese developers, long operating history,
and modestly diversified capital structure.
However, the B3 CFR is constrained by its weak liquidity and high
refinancing risk as well as its weak financial metrics.
Tahoe's senior unsecured rating of Caa1 is lower than the CFR by
one notch because of the risk of structural subordination. This
risk reflects Moody's expectation that the majority of claims will
be at the operating subsidiaries' level and will have priority over claims
at the holding company in a bankruptcy scenario. In addition,
the holding company lacks significant mitigating factors for structural
subordination. As a result, the expected recovery rate for
claims at the holding company will be lower.
The outlook on the ratings is negative, reflecting Moody's concerns
over Tahoe's weak liquidity and high debt refinancing risk.
Upward pressure is unlikely, given the negative outlook.
However, the outlook could return to stable if Tahoe can successfully
term out its debt maturity and improve its liquidity substantially,
with its cash/short term debt ratio above 1.0x on a sustained basis.
On the other hand, downgrade pressure could arise if (1) Tahoe's
contracted sales or revenue growth is below Moody's expectations,
(2) it engages in aggressive debt-funded acquisitions, or
(3) its liquidity position or credit metrics weaken further.
Credit metrics and liquidity levels indicative of downward rating pressure
include (1) EBIT/interest coverage below 1x, or (2) cash/short-term
debt below 1.0x on a sustained basis.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018. Please see the
Rating Methodologies page on www.moodys.com for a copy of
this methodology.
Tahoe Group Co., Ltd. listed on the Shenzhen Stock
Exchange in 2010. The company began its first residential property
project in Fuzhou in Fujian Province in 1996. Its operations are
mainly focused on residential property developments. It is also
engaged in commercial property developments. At 30 June 2018,
its land bank totaled around 18 million square meters by saleable gross
floor area (GFA).
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
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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
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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
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For any affected securities or rated entities receiving direct credit
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and whose ratings may change as a result of this credit rating action,
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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.
Wenhan Chen
AVP-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
Gary Lau
MD - Corporate Finance
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
