NOTE: On December 12, 2018, the press release was corrected as follows: The third contact name was removed at the end of the press release. Revised release follows.
Hong Kong, December 11, 2018 -- Moody's Investors Service has revised to positive from stable the
outlook on Shimao Property Holdings Limited's (Shimao) Ba2 corporate
family rating (CFR) and Ba3 senior unsecured rating.
At the same time, Moody's has affirmed the ratings of Shimao.
RATINGS RATIONALE
"The positive rating outlook reflects our expectation that Shimao
will improve its credit metrics, supported by strong contracted
sales execution over the next 12 -18 months," says
Wenhan Chen, a Moody's Assistant Vice President and Analyst.
Shimao's contracted sales increased 75% year-on-year
to RMB155 billion (total according to wholly owned and shares in joint
ventures and associates) in the first 11 months of 2018, following
48% year-on-year sales growth to RMB100.8
billion in 2017.
The stronger-than-expected sales performance was due to
the company's (a) improved product designs and broadened product
offerings; (b) use of enhanced sales incentive schemes for sales
staff; and (c) the consideration that its land bank is now more diversified
for managing regulatory risks.
Moody's expects Shimao will achieve 64% year-on-year
growth to RMB165 billion (total according to wholly owned and shares in
joint ventures and associates) in 2018, 18% above its target
of RMB140 billion. This level is substantially higher than RMB101
billion in 2017 and RMB68 billion in 2016.
Shimao is also expected to grow its contracted sales by around 21%
to RMB200 billion in 2019, despite Moody's expectation of
an overall 5% year-on-year decline in the overall
value of new home sales in China in 2019.
Its exceptionally strong sales performance and good liquidity position
will enable it to take market share from weaker developers in a challenging
environment.
As a result of the expected strong contracted sales in the coming 12 to
18 months, Shimao will register 23% year-on-year
revenue growth to around RMB87 billion in 2018 followed by 37%
year-on-year to around RMB119 billion in 2019.
Such a large scale of revenue -- which exceeds RMB100 billion --
will offer the benefit of economies of scale in terms of construction
costs.
It also further strengthens the company's access to domestic bank
financing.
These positive developments position the company closer to its Ba1 rated
peers.
Moreover, the company's debt leverage, as measured by
revenue/adjusted debt, will trend towards around 85-90%
over the next 12-18 months from 71% in 2017, driven
by revenue growth, disciplined land replenishment, and moderate
debt growth.
Moody's also expects Shimao's EBIT/interest coverage will continue
to improve to 3.8x-4.0x over the next 12-18
months as the company continues to deliver revenue growth and maintains
stable gross profit margins at around 30%.
The positive outlook is also based on Shimao's growing non-property
development income, including hotel revenue and investment property
rental income, which will increase above RMB3 billion and will be
equivalent to around 35% of its gross interest expenses over the
next 12-18 months, a feature not common among Ba-rated
peers.
Such non-development revenues strengthen the company's debt-servicing
ability over the property development cycles which could expose the company
to liquidity stress. The hotels and investment properties will
offer an alternative source of funding through mortgage financing or asset
disposals.
Shimao's Ba2 corporate family rating (CFR) reflects the company's
diversified and well-located land bank, which will support
its business growth in the medium term. The company's improved
product mix and geographic focus will also underpin better sales execution
and inventory turnover.
In addition, Shimao has a good track record of stable and diversified
access to domestic and offshore funding. The company has two equity-raising
platforms, which are listed companies, in Hong Kong and Shanghai.
However, Shimao's rating is constrained by the company's moderate
credit metrics, but which are expected to improve gradually over
the next 12-18 months because the company will adopt a more disciplined
approach financial management.
Shimao's liquidity profile is adequate. The company's
cash holdings, including restricted cash, totaled RMB36 billion
at the end of June 2018. This amount is sufficient to cover its
maturing debt of RMB29 billion in the next 12 months.
Upward rating pressure could emerge if Shimao (1) continues to deliver
strong sales growth and improves its profitability, (2) maintains
its strong liquidity and good access to the domestic and offshore bank
and capital markets, or (3) shows more prudent approaches to financial
management and land acquisitions.
Credit metrics indicative of upward rating pressure include EBIT/interest
coverage in excess of 4.25x and adjusted revenue/debt exceeding
90% on a sustained basis.
The outlook on the ratings could return to stable if Shimao shows (1)
contracted sales growth below expectations; (2) a weakening of its
liquidity position; (3) aggressive land acquisitions funded by debt;
or (4) credit metrics unlikely to exceed upgrade triggers over the next
12 months.
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.
Shimao Property Holdings Limited (Shimao) is a Chinese property developer
that listed on the Hong Kong Stock Exchange in July 2006. Its Chairman,
Mr. Hui Wing Mau held a 69.6 % stake in the company
at 30 September 2018. The company, together with its 58.92%-owned
Shanghai A-share-listed subsidiary, Shanghai Shimao
Co., Ltd. (Shanghai Shimao), held an attributable
land bank of 37 million square meters (sqm), at the end of June
2018.
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
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.
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 entity is participating and the rated entity or its agent(s)
generally provides 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.
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.
Wenhan Chen
AVP-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
