Hong Kong, October 18, 2021 -- Moody's Investors Service has downgraded the corporate family rating (CFR)
of Yango Group Co., Ltd to B2 from B1. At the same
time, Moody's has downgraded the senior unsecured rating on the
bonds issued by Yango Justice International Limited to B3 from B2.
The outlook has been changed to negative from stable.
"The downgrade reflects our expectation that Yango's weakened funding
access and likely reducing liquidity buffer over the next 6-12
months amid tight funding conditions and large debt maturity,"
says Celine Yang, a Moody's Vice President and Senior Analyst.
"The negative outlook reflects our expectation that Yango's
contracted sales will fall over the next 6-12 months because of
weaker consumer sentiment amid tight funding conditions, which will
in turn lead to a deterioration in the company's liquidity,"
adds Yang.
RATINGS RATIONALE
Yango's B2 rating reflects the company's established track
record in its key operating markets, large operating scale and diversified
land reserve.
However, the rating is constrained by its heightened refinancing
and liquidity risks, as well as its thin profit margins and significant
exposure to joint ventures (JVs), which increased its contingent
liabilities and weakened corporate transparency.
Yango has a large amount of onshore and offshore debt maturing by the
end of December 2022 -- in particular USD1.1 billion
of offshore bonds and RMB10.1 billion of onshore bonds maturing
or becoming puttable during the period.
Moody's believes Yango will face uncertainty in issuing new onshore and
offshore bonds at reasonable funding costs to refinance its maturing debt,
in view of the volatile offshore debt capital markets and the recent decline
in its onshore and offshore bond prices.
As of 30 June 2021, the company had unrestricted cash of RMB33 billion
compared with reported short-term debt of RMB26 billion.
Moody's expects the company will use its internal cash to repay
some of its maturing debt, but the repayment will reduce the funding
available for its operations over the next 12-18 months.
The company's financial flexibility will also be hurt if the weakness
in debt capital markets persists.
Moody's also expects Yango's contracted sales to fall over
the next 6-12 months, driven by weaker homebuyer confidence
amid tight funding conditions. This will weaken the company's
operating cash flow and in turn its liquidity.
Yango Justice International Limited's B3 senior unsecured rating
is one notch below Yango's B2 CFR because of the risk of structural
subordination. The subordination risk reflects the fact that most
of Yango's claims are at the 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 expected recovery
rate for claims at the holding company will be lower.
In terms of environmental, social and governance (ESG) factors,
Moody's has taken into account the private enterprise status and weak
liquidity of Yango's parent, Fujian Yango Group Co.,
Ltd.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, a rating upgrade over the next 12-18
months is unlikely. However, Moody's could return Yango's
outlook to stable if the company improves its liquidity and demonstrates
its ability to access funding by refinancing its onshore and offshore
debt maturing over the next 6-12 months.
Moody's could downgrade Yango's rating if the funding or operating
environment deteriorates further, such that the company is unable
to refinance its upcoming debt maturities; or if the company accelerates
its land acquisitions, thereby weakening its financial metrics and
liquidity. Metrics indicative of a downgrade include (1) unrestricted
cash/short-term debt below 1.0x; (2) EBIT/interest
coverage below 1.5x; or (3) revenue/adjusted debt below 50%-55%
on a sustained basis.
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.
Founded in 1995 in Fuzhou, Yango Group Co., Ltd (Yango)
is a Chinese property developer that focuses on the Greater Fujian area
and the Yangtze River Delta region. The company was listed on the
Shenzhen Stock Exchange in 2002 and had a market capitalization of around
RMB17 billion as of 11 October 2021.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions in the disclosure form. Moody's Rating Symbols and
Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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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
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
