Hong Kong, March 31, 2022 -- Moody's Investors Service has revised Dexin China Holdings Company Limited's rating outlook to negative from stable.
At the same time, Moody's has affirmed Dexin's B2 corporate family rating (CFR) and B3 senior unsecured debt ratings.
"The change to a negative outlook reflects Dexin's weakened transparency and information disclosure following its announced delay in publishing audited financials, which could adversely affect its access to funding," says Alfred Hui, a Moody's Analyst.
The negative outlook also reflects uncertainty over Dexin's ability to publish audited financial statements in a timely manner.
"However, the rating affirmation reflects our expectation that Dexin will maintain its adequate liquidity and disciplined financial management over the next 6-12 months," adds Hui.
RATINGS RATIONALE
On 29 March 2022, Dexin announced that it is unlikely to publish its audited financials by 31 March 2022[1]. However, the company published its annual unaudited preliminary financial results on 31 March 2022.
Moody's views that the delay in result announcement raises concerns over the company's corporate transparency and information disclosure. It could also weaken Dexin's fundraising ability to support its business operations and refinancing.
Nevertheless, Moody's expects Dexin to maintain adequate liquidity. The company reported a total unaudited cash balance of RMB17.6 billion as of the end of 2021, including RMB5.8 billion guaranteed deposits for the construction of pre-sold properties and a RMB1.4 billion guaranteed deposit for bank borrowings and bank acceptance notes. Although part of the cash would have to be kept at the project level to support its operations, Dexin will have sufficient internal resources to meet its obligations and debt repayment needs in the next 6-12 months, including $200 million of offshore bonds due in April 2022 and $348 million of offshore bonds due in December 2022.
Dexin's B2 CFR reflects the company's established operations in property development in Zhejiang province, its good-quality land bank in tier 2 and peripheral cities, and high exposure to joint ventures. Moody's also expects Dexin to exercise financial discipline in executing its business plans and control its land acquisition spending amid difficult operating and funding conditions.
Dexin's senior unsecured bond rating is one notch lower than its CFR because of the risk of structural subordination. This subordination risk reflects the fact that most of Dexin'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 factors, Moody's has considered Dexin's concentrated ownership by its key shareholder and Chairman, Mr. Hu Yiping, who held a total stake of 70% in the company as of the end of June 2021. The delay in the release of audited financial results raises concerns over the company's corporate transparency and information disclosure, which is part of Moody's governance considerations.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, a rating upgrade is unlikely.
However, Moody's could return the rating outlook to stable if Dexin discloses its 2021 audited accounts in a timely manner without any adverse financial trends, the company's operations proved to be resilient, and its liquidity remained adequate amid difficult operating and funding conditions.
On the other hand, Moody's could downgrade Dexin's ratings if the company is not able to publish its 2021 annual audited results on a timely basis, or there are signs of weakening in its liquidity, credit metrics or general governance practice.
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.
Dexin China Holdings Company Limited is a Zhejiang-based residential property developer. As of 31 December 2021, its land reserves totaled 19.1 million square meters in gross floor area, with most of them in Yangtze River Delta, in cities such as Hangzhou, Wenzhou, Ningbo and Nanjing.
REGULATORY DISCLOSURES
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REFERENCES/CITATIONS
[1] Dexin's filings to Hong Kong Stock Exchange 29-Mar-2022
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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.
Alfred Hui
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
