Hong Kong, March 25, 2020 -- Moody's Investors Service has downgraded to Caa1 from B3 the corporate
family rating (CFR) of Tahoe Group Co., Ltd (Tahoe).
At the same time, Moody's has downgraded to Caa2 from Caa1
the backed senior unsecured rating on the notes issued by Tahoe Group
Global (Co.,) Limited and unconditionally and irrevocably
guaranteed by Tahoe.
The outlook on the ratings changed to negative from stable.
RATINGS RATIONALE
"The downgrade reflects our concerns that weakening economic conditions
will elevate Tahoe's refinancing risk, given its material
amount of debt maturities over the next 12-18 months," says
Josephine Ho, a Moody's Vice President and Senior Analyst.
Tahoe has sizable short-term debt of RMB30.6 billion at
the end of September 2019, mainly coming from trust loans and onshore
bonds. Moody's expects that the company's cash holdings of RMB14.7
billion at the end of September 2019, together with its cash flow
from operations will be insufficient to cover its debt maturities through
March 2021.
In addition, Moody's expects that the company's cash flow will weaken
as a result of its contracted sales decline in 2020, driven by the
weaker economic conditions caused by the coronavirus outbreak.
Moody's expects Tahoe's contracted sales will decline 15%-20%
in 2020 when compared to 2019.
Meanwhile, Tahoe has been proactively managing its liquidity.
Between March and September 2019, the company sold its various stakes
in property projects for a total consideration of RMB10.6 billion
to address its refinancing needs. Moody's expects Tahoe will
continue to endeavor to meet its debt maturities, but whether it
can successfully meet all of its financial obligations remains uncertain.
In terms of environmental, social and governance (ESG) considerations,
Moody's has considered the rapid and widening spread of the coronavirus
outbreak, deteriorating global economic outlook, falling oil
prices, and asset price declines are creating a severe and extensive
credit shock across many sectors, regions and markets. The
combined credit effects of these developments are unprecedented.
China's property sector has been one of the sectors affected by the shock
given its sensitivity to consumer demand and sentiment. More specifically,
the weaknesses in Tahoe's credit profile, including its exposure
to regional markets in China, have left it vulnerable to shifts
in market sentiment in these unprecedented operating conditions,
and Tahoe remains vulnerable to the outbreak. Moody's regards the
coronavirus outbreak as a social risk under its ESG framework, given
the substantial implications for public health and safety.
Moody's has also taken into account the potential change of control risk
associated with the company's key shareholder, Mr. Huang
Qisen, who, acting in concert with his wife, holds a
61% stake, with almost all of their shares pledged.
The company's Caa2 senior unsecured rating is one notch lower than its
CFR because of structural subordination risk. This risk reflects
Moody's expectation that the majority of claims will be at the operating
subsidiaries' level 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.
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 expectation
that Tahoe's debt-refinancing risk will remain elevated over
the next 12-18 months.
Upward pressure is unlikely, given the negative outlook.
However, the outlook could return to stable if Tahoe can successfully
term out its debt maturities and improve its liquidity substantially,
whereby its cash/short term debt ratio remains above 1.0x on a
sustained basis.
On the other hand, downgrade pressure could arise if the company's
liquidity deteriorates further.
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 commenced its first residential property project
in Fuzhou in Fujian Province in 1996. Its operations are mainly
focused on residential property development, and it is also engaged
in commercial property development. At 31 December 2018,
its land bank totaled around 16 million square meters by saleable gross
floor area (GFA).
REGULATORY DISCLOSURES
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
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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
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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
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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,
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to rated entity, Disclosure from rated entity.
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Please see www.moodys.com for any updates on changes to
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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.
Josephine Ho
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
