Hong Kong, February 17, 2022 -- Moody's Investors Service has downgraded Times China Holdings Limited's
corporate family rating (CFR) to B1 from Ba3, and its senior unsecured
rating to B2 from B1.
The outlook on the ratings remains negative.
"The downgrade reflects Times China's reduced liquidity buffer due
to weakened funding access and continued cash spending on urban redevelopment
projects (URPs)," says Kelly Chen, a Moody's Assistant Vice
President and Analyst.
Moody's also expects Times China's contracted sales will decline and further
pressure its key credit metrics, which will no longer support its
previous Ba3 CFR.
"The negative outlook reflects our expectation that Times China's
operating and financial performance will deteriorate in the next 12-18
months amid the challenging business environment," adds Chen.
RATINGS RATIONALE
Moody's estimates Times China's cash balance has declined
notably as of the end of 2021 due to its continued spending on URPs and
slowed cash collection from property sales, leading to a reduced
liquidity buffer. Moody's also anticipates that the company's
unrestricted cash to short-term debt coverage ratio would decline
to below 1.5x at the end of 2021 from 2.0x at the end of
June 2021. In addition, Moody's believes that part of such
cash is kept at the project level and cannot be mobilized immediately
to service the company's debt when needed.
Times China relies heavily on bond markets for funding, which accounted
for 59% of its total debt as of June 2021. In particular,
the company has around USD682 million in offshore bonds and RMB7.4
billion in onshore bonds becoming puttable or maturing before the end
of June 2023. It will likely not be able to raise sizable new bonds
at a reasonable cost to refinance its maturing debt in the next 6-12
months, given its weakened funding access. Nevertheless,
Times China's liquidity is adequate. Moody's expects
company's cash holdings and operating cash flow is sufficient to cover
its committed land payments and maturing debt in the next 12-18
months. Moody's also expects Times China will use its internal
cash to repay some of its maturing debts, but the repayment will
constrain the funding available for operation.
Moody's forecasts that Times China's contracted sales will fall
over the next 6-12 months, driven by its diminished saleable
resources and weak homebuyer confidence. The drop in contracted
sales will weaken the company's financial profile and reduce its operating
cash flow and, in turn, its liquidity. The company's
contracted sales fell 5% in 2021 from the previous year.
Moody's projects Times China's interest coverage, as measured
by EBIT/interest coverage, will slip to 2.1x-2.2x
over the next 12-18 months, from 2.5x for the 12 months
ended June 2021. The decline will be driven by slower revenue recognition
and declining profit margins, as the company will likely offer price
discounts to accelerate sales. On the other hand, Moody's
forecasts that the company's debt leverage, as measured by revenue/debt,
will stay around 60%-65% over the same period,
given the expected debt reduction. These credit metrics position
the company's CFR at B1.
Times China's B1 CFR reflects the company's leading market position in
Guangdong province and its good property development track record.
At the same time, the B1 CFR is constrained by the company's geographic
concentration in Guangdong province and increasing exposure to its joint
venture (JV) businesses, which lowers corporate transparency over
its credit metrics.
Times China's B2 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 increased JV exposure, which reduces
its corporate transparency over its credit metrics.
Moody's has also considered Times China's concentrated ownership by its
key shareholders, Shum Chiu Hung and his wife, who jointly
held a 61.64% stake as of the end of June 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
Moody's could downgrade the ratings if Times China's liquidity and
refinancing risks heighten; or if its operating cash flow declines
materially due to falling property sales.
Credit metrics indicative of a downgrade include EBIT/interest coverage
below 2.0x or unrestricted cash/short-term debt below 1.0x
on a sustained basis.
Downward rating pressure could also increase if the contingent liabilities
associated with Times China's JVs or the likelihood of the company
providing funding support to its JVs increases significantly.
On the other hand, Moody's could return the outlook to stable if
Times China strengthens its funding access, liquidity and credit
metrics.
Credit metrics that would indicate a stable rating outlook include unrestricted
cash/short-term debt above 1.25x and EBIT/interest coverage
above 2.5x, both on a sustained basis.
A significant reduction in the contingent liabilities associated with
the company's joint ventures (JVs) would also be positive for the ratings.
This could arise from its reduced usage of its JVs or material improvement
in the financial strength of its JV projects.
The principal methodology used in these ratings 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.
Based in Guangdong province, Times China Holdings Limited is a property
developer that focuses on meeting end-user demand for mass-market
housing. As of 30 June 2021, it had 145 property projects
across 12 cities in Guangdong and in major provincial cities such as Changsha,
Wuhan, Chengdu and Hangzhou. The company's land bank totaled
around 21.66 million square meters as of 30 June 2021.
REGULATORY DISCLOSURES
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Chen Chen
Asst Vice President - 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
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
