Hong Kong, March 28, 2019 -- Moody's Investors Service has revised to stable from negative the
ratings outlook of Guangzhou R&F Properties Co., Ltd.
(Guangzhou R&F) and R&F Properties (HK) Company Limited (R&F
HK).
At the same time, Moody's has affirmed Guangzhou R&F's Ba3 and
R&F HK's B1 corporate family ratings (CFR).
R&F HK is a wholly-owned subsidiary of Guangzhou R&F.
RATINGS RATIONALE
"Guangzhou R&F's stable rating outlook reflects the company's
improved liquidity position, our expectation that the improvement
will be sustained, and that its capital structure will improve,"
says Kaven Tsang, a Moody's Senior Vice President.
Over the last six months, Guangzhou R&F demonstrated its ability
to raise new funding to refinance its bonds and extended the put options
on its issued bonds.
Its improved reported results for 2018 versus 2017 — with a 30%
year-on-year growth in revenues, 49% in core
profit, and 60% in contracted sales, further support
its access to the bank and capital markets.
Looking ahead, Moody's expects that the company will sustain
its access to the bank and debt markets to manage its refinancing risk.
In addition, Moody's expects that Guangzhou R&F will likely
generate a lower growth in contracted sales of around 10% in 2019,
due to the slowing economy in China. But its cash flow before land
investments in 2019 and year-end cash on hand will increase slightly
over that in 2018.
Guangzhou R&F's debt leverage — as measured by revenue/adjusted
debt — was high relative to Ba3 Chinese property peers.
Nevertheless, the company's strong contracted sales in 2018
will help to recognize growth in revenues over the next 12-18 months,
which will in turn help to improve debt leverage. Moody's
expects that the company's revenue/adjusted debt will improve to
55%-60% over the next 1-2 years from 45%
in 2018. Such levels support its Ba3 corporate family rating.
Over the medium term, Moody's expects the company will likely
take actions to improve its capital base to support its investment in
commercial properties and hotels, and expand its scale in residential
property development.
Guangzhou R&F's Ba3 CFR reflects the company's (1) sizable scale,
(2) track record of operating through property cycles in China,
(3) higher profitability than Chinese property peers, and (4) fairly
diversified land bank, which focuses on first- and second-tier
cities, where housing demand is more stable.
Additionally, the company's non-property development
businesses, which include commercial properties and hotels,
provide some benefits of diversification.
Moody's expects the company's rental income from commercial
properties and operating profit from its hotels could grow to an amount
equivalent to 23%-24% of its gross interest expenses
over the next 1-2 years.
R&F HK's B1 corporate family rating reflects its standalone credit
quality and a one-notch rating uplift, based on Moody's
assessment of financial and operating support from its parent, Guangzhou
R&F.
R&F HK's standalone credit profile reflects the stable recurring cash
flows from its high quality investment property portfolio, tempered
by its small scale of operations and weak financial metrics.
The one-notch rating uplift reflects Moody's expectation
that Guangzhou R&F will extend support to R&F HK for the following
reasons:
(1) Guangzhou R&F's full ownership of R&F HK and its intention
to maintain this stake;
(2) R&F HK's role as the primary platform for the Guangzhou R&F
group to raise funds from offshore banks and the capital markets to invest
in property projects in China, as well as for overseas investments;
(3) Guangzhou R&F's track record of financial support to R&F HK;
and
(4) The reputational risks that Guangzhou R&F could face if R&F
HK defaults.
Moody's could upgrade Guangzhou R&F's rating if the company
(1) improves its capital structure and lowers its debt leverage,
such that revenue/adjusted debt exceeds 75%-80% and
EBIT/interest rises above 3.5x-4.0x on a sustained
basis, (2) shows the ability to generate contracted sales that support
its large scale, and (3) strengthens its liquidity position,
with cash/short-term debt above 1.5x on a sustained basis.
On the other hand, downward rating pressure for Guangzhou R&F
could emerge if (1) the company's debt leverage deteriorates, (2)
it suffers sales declines that weaken its liquidity position or credit
metrics, or (3) it embarks on aggressive debt-funded acquisitions.
Specific indicators for a downgrade include (1) cash/short-term
debt consistently below 1.0x, (2) EBIT/interest consistently
below 2.5x-3.0x, or (3) revenue/adjusted debt
failing to show an improving trend over the next 12-18 months.
Moody's could upgrade R&F HK's rating if the company's
standalone credit profile remains stable and Guangzhou R&F's rating
is upgraded.
On the other hand, downward rating pressure on R&F HK could
emerge if: (1) Guangzhou R&F's rating is downgraded, or
(2) there is a reduction in the ownership of or weakening in the support
from Guangzhou R&F.
Moody's could also downgrade R&F HK's rating if the company
materially accelerates its development operations and rolls out an aggressive
land acquisition plan, such that its debt leverage and liquidity
deteriorate materially.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018. 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 2018, the company's land bank totaled 57.8
million square meters in attributable saleable area, spread across
96 locations: 90 in cities and areas in China, one in Malaysia,
one in the UK, one in Cambodia, one in Korea and two in Australia.
Mr. Li Sze Lim and Mr. Zhang Li are the company's co-founders
and own 33.52% and 32.02% in equity interests,
respectively.
R&F Properties (HK) Company Limited 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 a holding company for some of Guangzhou R&F's property projects
in China.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
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to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
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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
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For any affected securities or rated entities receiving direct credit
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and whose ratings may change as a result of this credit rating action,
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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.
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
