Hong Kong, October 19, 2021 -- Moody's Investors Service has placed on review for downgrade the B2 corporate
family rating (CFR) of Ronshine China Holdings Limited and the B3 senior
unsecured rating on the bonds issued by Ronshine.
At the same time, Moody's has changed the outlook to ratings
under review from stable.
"The review for downgrade reflects Ronshine's heightened refinancing
risks because of its sizable debt maturing over the next 6-12 months
and its weakened access to offshore funding amid tight funding conditions,"
says Kelly Chen, a Moody's Assistant Vice President.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE
OF THE RATINGS
Ronshine's B2 CFR continues to reflect the company's track record
and strong market position in property development in the Yangtze River
Delta region and Fujian Province. The B2 CFR also considers the
company's adequate liquidity and diversified funding access.
On the other hand, the rating is constrained by Ronshine's aggressive
expansion, resulting in low profitability and weakened interest
coverage; and its high exposure to its joint ventures, which
lowers its corporate transparency.
Moody's expects Ronshine's liquidity will weaken over the next 12-18
months amid the tougher operating and funding environment. As of
30 June 2021, the company had unrestricted cash of RMB27.3
billion, compared with reported short-term debt of RMB25.2
billion. Ronshine has a large amount of debt maturing or becoming
puttable from 1 October 2021 to 31 December 2022 -- specifically,
USD1.5 billion of offshore bonds and RMB9.4 billion of onshore
bonds maturing or becoming puttable during the period.
Moody's expects Ronshine 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 expects Ronshine's contracted sales will decline 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.
Ronshine's B3 senior unsecured rating is one notch lower than its CFR
to reflect the risk of structural subordination. This risk reflects
the fact that the majority of Ronshine'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 expected recovery
rate for claims at the holding company will be lower.
With respect to environmental, social and governance (ESG) factors,
Ronshine's B2 CFR rating considers the company's ownership by its chairman,
Mr. Ou Zonghong, who owned a 65% stake as of the end
of June 2021. It also considers the company's established governance
structures and standards as required by the relevant code for companies
listed on the Hong Kong Stock Exchange. Furthermore, Ronshine
has three special committees — an audit committee, a remuneration
committee and a nomination committee -- of which the audit
committee is chaired and dominated by independent non-executive
directors.
Moody's review will focus on (1) assessing Ronshine's access to
funding and its liquidity and refinancing risks, in particular its
ability to address its maturing debt (including puttable bonds) in a timely
manner; and (2) the company's ability to maintain stable sales and
operating cash flow on a sustained basis.
Moody's could downgrade the rating if Ronshine's liquidity and refinancing
risks heighten, if its operating cash flow materially declines because
of a drop in property sales, or if its funding access weakens.
An upgrade of the ratings is unlikely in the near term, given the
review for downgrade. However, Moody's could confirm the
ratings if Ronshine's funding access improves and if it maintains
stable operating cash flow and strengthens its liquidity.
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.
Ronshine China Holdings Limited was incorporated in the Cayman Islands
in 2014 and listed on the Hong Kong Stock Exchange in January 2016.
The property developer focuses on mid-to-high-end
residential units in Fujian Province, the Yangtze River Delta,
the Pearl River Delta, Central China and the Bohai Sea region.
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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issued by one of Moody's affiliates outside the EU and is endorsed
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am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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The first name below is the lead rating analyst for this Credit Rating
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this Credit Rating.
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
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
