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Rating Action:

Moody's reviews Guangzhou R&F and R&F HK for downgrade

 The document has been translated in other languages

03 Apr 2020

Hong Kong, April 03, 2020 -- Moody's Investors Service has today placed the Ba3 corporate family rating (CFR) of Guangzhou R&F Properties Co., Ltd. and the B1 CFR of R&F Properties (HK) Company Limited (R&F HK) on review for downgrade.

The outlooks on the two companies are changed to rating under review from stable.

R&F HK is a wholly-owned subsidiary of Guangzhou R&F.

RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

"The review for downgrade of Guangzhou R&F's CFR reflects our concerns over its high debt leverage and increased liquidity risk, given its sizable refinancing needs in the next 12-18 months," says Josephine Ho, a Moody's Vice President and Senior Analyst.

Guangzhou R&F has a total of RMB62 billion in debt maturing over the next 12 months, including RMB21 billion of maturing and puttable bonds, RMB28 billion in bank loans, and RMB13 billion in trust loans. In addition, the company has declared a dividend payment of RMB1.28 per share, or RMB4.5 billion, which will be paid in the second quarter of 2020.

The company's cash holdings of RMB38 billion at the end of 2019, together with its contracted sales proceeds after deducting basic operating cash flow items, are not sufficient to cover these payments, and it will need to raise new debt to repay its maturing debt.

In addition, Moody's expects Guangzhou R&F's debt leverage, as measured by revenue/adjusted debt, will remain weak at 44%-46% in the next 12-18 month, compared with 44% at the end of 2019. This ratio is weak when compared with its Ba-rated Chinese property peers, and reduces its financial flexibility.

While Guangzhou R&F has a track record of refinancing maturing debt both onshore and offshore, the current volatile funding environment is creating uncertainty.

To help address its refinancing needs, Guangzhou R&F recently received a RMB4 billion quota for onshore bond issuance and RMB5 billion quota for private placement note in the first quarter of 2020.

The company in March 2020 also repaid $325 million of its $700 million offshore bond due in January 2021.

The review for downgrade of R&F HK's B1 CFR reflects the weakened ability of its parent to provide financial and operating support in times of need, and the potential deterioration in its standalone credit quality in view of the challenging operating environment for its hotel business.

Moody's review will focus on (1) Guangzhou R&F's refinancing and liquidity management plan, (2) its ability to access funding to refinance its maturing debt, including puttable bonds, (3) its ability to meet its contracted sales plan and to deleverage over the next 12 months, and (4) its ability to provide support to R&F HK.

Moody's expects to close the review in the near future.

In terms of environmental, social and governance (ESG) factors, Moody's has considered the concentrated ownership by Guangzhou R&F's key shareholders, its high dividend payouts and aggressive financial management. In addition, Moody's has considered the rapid and widening spread of the coronavirus outbreak and the potential impact on China's property sector. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

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.

Established in 1994 and listed on the Hong Kong Stock Exchange in 2005, Guangzhou R&F Properties Co., Ltd. is a large developer in China's residential and commercial property sector. At the end of 2019, the company's land bank totaled 57.9 million square meters (sqm) in attributable saleable area, spread across 97 cities in China and 6 cities overseas, including Australia, the UK, Malaysia, Korea, and Cambodia. Mr. Li Sze Lim and Mr. Zhang Li are the company's co-founders and owned 30.99% and 29.52% equity interests, respectively, as of 31 December 2019.

R&F Properties (HK) Company Limited (R&F HK) and its subsidiaries are principally engaged in the development and sale of properties, property investments and hotel operations in China. The company was established in Hong Kong on 25 August 2005. It serves as an offshore funding vehicle and holding company for some of Guangzhou R&F's property projects in China.

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.

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 ratings in accordance with Moody's rating practices. For ratings 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 credit rating. For provisional ratings, this announcement 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 to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings 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, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entities are participating and the rated entities or their agent(s) generally provide Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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

No Related Data.
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