Hong Kong, July 07, 2022 -- Moody's Investors Service has downgraded Times China Holdings Limited's corporate family rating (CFR) to Caa1 from B2 and its senior unsecured rating to Caa2 from B3.
The outlook on the ratings remains negative.
"The downgrade reflects Times China's heightened refinancing risks, driven by its weak operating cash flow, weakened liquidity and sizable debt maturities over the next 6-12 months," says Kelly Chen, a Moody's Vice President and Senior Analyst.
"The negative outlook reflects the uncertainties over the company's ability to address its refinancing needs and replenish its liquidity over the next 6-12 months amid a tight funding environment," adds Chen.
RATINGS RATIONALE
Moody's assesses Times China's liquidity to be weak, in view of the company's declining contracted sales and constrained access to funding amid sizable maturities in the next 6-12 months. Specifically, Times China will have US$800 million of offshore bonds and RMB9.6 billon of onshore bonds maturing or becoming puttable before the end of 2023.
Moody's forecasts Times China's contracted sales to fall significantly to around RMB60 billion in 2022 from RMB96 billion in 2021 amid weak consumer sentiment and challenging operating conditions. This will reduce the company's operating cash flow and, in turn, its liquidity. The company's contracted sales decreased 40% during the first five months of 2022 compared with the same period in 2021.
While Moody's believes the company will scale down its land acquisitions and developments and control its expenses to preserve liquidity for debt servicing, its urban redevelopment projects will likely continue to strain its cash resources as the associated expenditure cannot be cut back immediately.
Moody's also expects Times China's credit metrics to weaken over the next 12-18 months. The rating agency forecasts the company's debt leverage, as measured by revenue/adjusted debt, will decrease to 55%-65% over this period from 72% in 2021, driven by slower revenue recognition. Similarly, its interest-servicing ability, as measured by EBIT interest coverage, will weaken to 2.3x-2.8x from 3.2x over the same period, driven by the expected declining margin.
Times China's Caa1 CFR continues to reflect the company's strong market position in Guangdong province. However, its geographic concentration in the province limits its operational flexibility and exposes it to regional economic and regulatory risks. Its increased exposure to its joint venture (JV) businesses also lowers its corporate transparency over its credit metrics.
Times China's Caa2 senior unsecured rating is one notch lower than its CFR, reflecting the risk of structural subordination. Most of Times China'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. As a result, the likely recovery rate for claims at the holding company will be lower.
As for environmental, social and governance (ESG) risks, Moody's has considered Times China's concentrated ownership by its key shareholders, Shum Chiu Hung and his wife, who jointly held a 62.74% stake as of the end of December 2021. Moody's has also considered the company's adherence to the Listing Rules of the Hong Kong Stock Exchange and the Securities and Futures Ordinance in Hong Kong SAR, China on related-party transactions, and the presence of three independent nonexecutive directors on the company's nine-member board, which provides management oversight. The independent nonexecutive directors also chair the company's audit and remuneration committees.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of Times China ratings is unlikely over the next 12 months, given the negative outlook.
However, positive rating momentum could emerge if the company improves its liquidity and access to funding; and strengthens its contracted sales over the next 12-18 months.
On the other hand, Moody's could downgrade Times China's ratings if its liquidity deteriorates further.
The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018 and available at https://ratings.moodys.com/api/rmc-documents/66220. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Based in Guangdong province, Times China Holdings Limited is a property developer that focuses on mass-market housing. As of the end of 2021, the company's land bank totaled around 19.9 million square meters across 17 cities in Guangdong and major provincial cities such as Changsha, Wuhan, Chengdu and Hangzhou.
REGULATORY DISCLOSURES
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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.
Chen Chen
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
