Hong Kong, March 29, 2021 -- Moody's Investors Service has changed Agile Group Holdings Limited's
rating outlook to stable from negative.
At the same time, Moody's has affirmed Agile's Ba2 corporate
family rating (CFR) and Ba3 senior unsecured rating on its notes.
"The outlook revision to stable from negative reflects our expectation
that Agile's revenue growth and controlled debt increase will help
to further improve its key financial metrics over the next 12-18
months," says Kaven Tsang, a Moody's Senior Vice
President.
"The rating affirmation also reflects our view that Agile will maintain
financial discipline and good liquidity while pursuing business growth
over the next 1-2 years," adds Tsang.
RATINGS RATIONALE
Agile's Ba2 CFR reflects its (1) strong market position and a solid
track record of property development in its core Guangdong and Hainan
markets; (2) track record of disciplined financial management;
(3) good liquidity, with good access to offshore debt and banking
markets; and (4) improving geographic diversification that could
temper regional economic and regulatory risks.
At the same time, its Ba2 rating incorporates the company's modest
financial metrics, and exposure to financial and execution risks
associated with its expansion in non-property businesses.
Moody's expects Agile's debt leverage, measured by revenue/adjusted
debt, to improve further to 70%-75% over the
next 1-2 years after increasing to 66.9% in 2020
from 50.5% in 2019. Similarly, its interest
coverage, measured by EBIT/interest, will rise to 3.0x-3.5x
in the next 1-2 years, following an improvement to 2.8x
in 2020 from 2.3x in 2019.
These improvement trends meet our expectation for Agile's Ba2 CFR,
and reflects Agile's abilities to reduce its leverage through prudent
business growth and controlled debt increases.
Agile's revenue growth over the next 1-2 years will be supported
by a higher delivery of presold property projects, due to solid
presales growth over the past 2-3 years, and continued development
in non-property businesses.
Agile's property presales grew 17% to RMB138.2 billion
in 2020 despite the disruption caused by COVID-19 in the first
half (1H). This growth provides visibility for the recognition
of property development revenues over the next 1-2 years.
Moody's expects Agile's solid sales execution, established
brand and sizable land banks in Greater Bay Area and Eastern China to
support moderate growth in its property presales to RMB145 billion-RMB155
billion annually over the next 1-2 years, amid tightened
credit conditions in China.
Moody's also expects Agile to maintain financial discipline and
keep its investments in new land purchases and non-property development
businesses at 25%-30% of its property presales over
the next 1-2 years. This will allow the company to keep
its debt growth at an annual rate of 5%-10% over
the next 1 -2 years.
Agile's liquidity position remains good. The company's cash-on-hand
of RMB50.9 billion as of 31 December 2020 can cover its short-term
debt of RMB38.8 billion as of the same date. Moody's
also forecasts its cash holding and operating cash flow to be sufficient
to cover its maturing debt, committed land premiums and dividend
payments over the next 12-18 months.
In terms of environmental, social and governance factors,
Moody's has considered Agile's concentrated ownership by its key
shareholder, the Chen family, which held a 66.3%
stake as of end of December 2020. The family's track record
of injecting equity into the company to support its liquidity and refinancing
needs partly temper concerns over its concentrated ownership.
Agile's CFR has also considered the presence of internal governance structures
and disclosure standards, as required under the Corporate Governance
Code for companies listed on the Hong Kong Stock Exchange.
Agile's Ba3 senior unsecured bond rating is one notch below its CFR because
of the risk of structural subordination. This subordination risk
reflects the fact that most of Agile'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 likely recovery
rate for claims at the holding company will be lower.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward rating pressure could develop if Agile (1) executes its business
expansion plan with discipline; (2) maintains a strong liquidity
position; and (3) improves its credit metrics, with revenue/adjusted
debt above 80%-85% and EBIT/interest coverage trending
to 4.5x-5.0x on a sustained basis.
Downward rating pressure could develop if (1) Agile's presales decline,
(2) the company fails to ramp up its environmental protection business
or (3) the expansion strategy in its property or non-property businesses
becomes more aggressive such that its debt or contingent liabilities increase,
weakening its credit metrics.
Indications of downgrade pressure includes EBIT/interest coverage below
3.0x-3.5x or revenue/adjusted debt under 65%-70%
on a sustained basis.
Any signs of weakening in liquidity with cash/short-term debt consistently
below 1.0x or deterioration of corporate governance standards will
also pressure the rating.
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.
Agile Group Holdings Limited (Agile) is one of China's major property
developers. As of 31 December 2020, the company had a land
bank with a total attributable planned gross floor area (GFA) of 53 million
sq.m. in 84 cities, spanning across Southern China
region, Eastern China region, Western China region,
Central China region, Hainan and Yunnan region, Northeast
China region, Northern China region, Hong Kong and overseas.
Southern China (mainly Guangdong Province) is Agile's largest market,
accounting for 32% of the company's land bank as of 31 December
2020 and 34% of its presales by GFA in 2020.
REGULATORY DISCLOSURES
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sensitivity analysis, see the sections Methodology Assumptions and
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Kaven Tsang
Senior Vice President
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
