Hong Kong, April 01, 2022 -- Moody's Investors Service has placed KWG Group Holdings Limited's (KWG) B2 corporate family rating (CFR) on review for downgrade.
The outlook has been changed to ratings under review from negative.
"The review for downgrade reflects KWG's increased refinancing uncertainties and weakened corporate transparency and information disclosure, following its recently announced delay in reporting its audited 2021 results," says Celine Yang, a Moody's Vice President and Analyst.
RATINGS RATIONALE/FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
On 30 March 2022, KWG announced that it would not be able to publish its audited annual results for the year ended 31 December 2021 due to pandemic-related delays. Instead, KWG published its unaudited financial results for 2021 on 31 March 2022. The company expects to publish its audited financial results no later than 15 April 2022.
Moody's views KWG's delay in releasing its audited financial results raises concerns about the company's transparency and information disclosure.
It would also worsen market confidence in the company and raise its refinancing risks, especially considering that it will have a sizable amount of debt maturing in the next 6-12 months. KWG's total cash balance reduced notably to around RMB29.4 billion as of December 2021 from RMB44.6 billion as of December 2020, as revealed by its unaudited financial results. The reduced cash level has also pressured its liquidity.
Moody's forecasts that KWG's contracted sales will fall by around 15% in 2022, driven by weak homebuyer confidence amid tight funding conditions. The decline in contracted sales will strain the company's liquidity. KWG's sales declined by 25% to RMB8.5 billion in the first two months of 2021 from RMB11.3 billion in same period last year.
In terms of environmental, social and governance (ESG) factors, Moody's has considered the concentration of KWG's ownership in its controlling shareholders, Kong Jianmin and his family, who held a stake of 63% in the company as of 30 June 2021. The delay in the release of its audited financial results raises concerns over the company's transparency and information disclosure, which is part of Moody's governance considerations and a key driver of today's rating action.
Moody's will review (1) KWG's ability to provide its audited 2021 financial results in line with its plan and in compliance with the listing rules of the Hong Kong Stock Exchange, (2) the company's audited 2021 financial results, and (3) its liquidity and refinancing risks.
An upgrade is unlikely, given that the rating is placed on review. However, Moody's could confirm the rating if KWG publishes its audited accounts in a timely manner without any adverse financial trends, its operations proved to be resilient, and its liquidity is adequate amid the current difficult operating and funding conditions.
On the other hand, Moody's could downgrade the rating if KWG further delays its 2021 annual audited financial results or if there are signs of weakening in its liquidity, credit metrics or general governance practices.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating 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.
COMPANY PROFILE
KWG Group Holdings Limited is a Chinese property developer that was founded in 1995. As of 30 June 2021, the company had a total attributable land bank of 25.6 million square meters in gross floor area (GFA) across 41 cities in China, which can support three to five years of development. KWG mainly develops medium- to high-end residential properties, office buildings, shopping malls and hotels.
KWG listed on the Hong Kong Stock Exchange in July 2007. Its chairman, Kong Jianmin, and his family owned about 63% of the company as of 30 June 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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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.
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
