Hong Kong, April 02, 2020 -- Moody's Investors Service has changed the outlook on Agile Group Holdings
Limited to negative from stable.
At the same time, Moody's has affirmed Agile's Ba2 corporate family
rating (CFR) and the Ba3 senior unsecured rating on the bonds issued by
Agile.
RATINGS RATIONALE
"The change in outlook to negative reflects Agile's weakened
credit metrics because of its increased debt to fund its expansion.
While we expect the company's credit metrics over the next 12-18
months will gradually improve, they will continue to position the
company at the weaker end of its Ba2 CFR," says Kaven Tsang,
a Moody's Senior Vice President.
"The negative outlook also reflects the uncertainty over the company's
ability to execute on its deleveraging plan in view of the challenging
operating environment," adds Tsang.
Specifically, Moody's expects Agile's debt leverage,
as measured by revenue/adjusted debt, will trend to around 60%
over the next 12-18 months from 51.2% in 2019,
and for EBIT/interest to recover to 3.0x from 2.3x over
the same period. These credit metrics will still position the company
at the weaker end of it current rating.
The recovery in its financial metrics is driven by expected revenue growth
in its property development business following strong presales over the
past 2-3 years. Such growth in the property management business,
along with increased capacity and the continuing ramp-up of its
environmental protection business will in turn support revenue growth.
While Agile's presales fell 40% year-on-year
in the first two months of 2020 due to the impact of coronavirus outbreak,
the impact on full-year presales will be mitigated by the company's
sizable saleable resources in Southern and Eastern China given strong
economic fundamentals and housing demand in these areas. Moody's
expects Agile's presales will stay largely flat at RMB115-120
billion in 2020.
Additionally, Moody's expects Agile will control its debt
growth over the next 12-18 months by scaling down acquisitions.
Moody's expects the company will spend around RMB35-40 billion,
or around 30% of its presales proceeds, to acquire new land
and other non-property development businesses in 2020 and 2021.
Agile's Ba2 CFR reflects its (1) strong market position and solid
track record of property development in 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.
Agile's 2019 results were weak, as reflected by a decline
in revenue/adjusted debt and EBIT/interest to respectively 51.2%
and 2.3x in 2019 from 54% and 4.1x in 2018.
The weak results were mainly the result of slower-than-expected
revenue growth due to delays in the ramp-up of its environmental
protection business, a decline in its gross margin, increased
debt to fund business growth and an associated increase in interest expenses.
In terms of environmental, social and governance (ESG) factors,
the Ba2 CFR considers Agile's concentrated ownership by its key shareholder,
the Chen family, which held a total 67.1% stake in
the company as of 31 December 2019. The Ba2 CFR has also considered
the family's track record of injecting equity of around HKD1.6
billion into the company to support its liquidity and refinancing needs
during the difficult time in 2014.
In addition, the rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, falling oil prices,
and asset price declines are creating a severe and extensive credit shock
across many sectors, regions and markets. The combined credit
effects of these developments are unprecedented. China's
property sector has been one of the sectors affected by the shock given
its sensitivity to consumer demand and sentiment. More specifically,
given Agile's exposure to regional markets in China, it is
exposed to shifts in market sentiment in these unprecedented operating
conditions. Moody's regards the coronavirus outbreak as a
social risk under its ESG framework, given the substantial implications
for public health and safety.
Agile's liquidity position is good. The company's cash-on-hand
of RMB42.6 billion as of 31 December 2019 can fully cover its short-term
debt of RMB42.5 billion. Moody's also expects its
cash holding and operating cash flow to be sufficient to cover its maturing
debt, committed land premiums and dividend payments in the next
12-18 months.
Additionally, Agile has diversified access to different onshore
and offshore funding. In particular, the company has a long
track record of accessing both offshore banks and capital markets when
compared with its Ba-rated peers.
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 expected recovery
rate for claims at the holding company will be lower.
Factors that would lead to an upgrade or downgrade of the ratings:
Upward rating pressure is unlikely given the negative outlook.
However, the outlook could be revised to stable if Agile (1) successfully
executes its business expansion plan as indicated by meeting its presales
target and ramps up its environmental protection business; (2) maintains
its strong liquidity position; and (3) improves its credit metrics,
with revenue/adjusted debt trending to 65%-70% and
EBIT/interest coverage trending to 3.0x-3.5x on a
sustained basis.
Downward rating pressure could develop if Agile's presales decline,
the company fails to ramp up its environmental protection business or
the company turns to a more aggressive expansion strategy in its property
or non-property businesses, such that its credit metrics
remain weak.
Metrics Moody's would consider for a downgrade include EBIT/interest
coverage failing to trend to 3.0x-3.5x or revenue/adjusted
debt failing to trend back to 65%-70% over the next
12-18 months.
Any sign of weakening liquidity, with cash/short-term debt
consistently below 1.0x, 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 is one of China's major property developers.
As of 31 December 2019, the company had a land bank with a total
attributable planned GFA of 39.70 million sq.m. in
75 cities across different regions in China, Hong Kong and overseas.
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.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
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.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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.
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
