Hong Kong, May 31, 2019 -- Moody's Investors Service has changed to positive from stable the outlook
on Yango Group Co., Ltd's B2 corporate family rating
and on Yango Justice International Limited's B3 backed senior unsecured
debt ratings.
At the same time, Moody's has affirmed all ratings.
RATINGS RATIONALE
"The change in outlook reflects our expectation that Yango's credit metrics
will strengthen over the next 12-18 months, driven by expected
strong growth in revenue on the back of robust contracted sales growth
in 2017 and 2018," says Celine Yang, a Moody's Assistant Vice
President and Analyst.
"In addition, we expect Yango will gradually reduce its exposure
to trust financing and improve its debt maturity profile over the coming
12-18 months," adds Yang.
Moody's expects Yango's gross contracted sales will grow at a more moderate
annual rate of around 10% to approximately RMB175-180 billion
in 2019, compared with the robust 78% and 98% achieved
in 2018 and 2017 respectively.
This level of contracted sales is still large when compared with B2-rated
Chinese property peers, and will support the company's revenue growth
over the next 12-18 months.
Moody's expects that Yango's debt leverage — as measured by revenue/adjusted
debt — will trend towards 60%-65% over the
next 12-18 months from 44% in 2018. Meanwhile,
its interest coverage -- as measured by adjusted EBIT/interest
-- will improve to around 2.3x-2.5x
from 2.2x over the same period, driven by expected revenue
growth and stable profit margins.
Yango's liquidity is good. Moody's expects its current
cash balance, together with the strong cash flow generated from
its operations, will be able to cover its short-term debt,
the RMB2.59 billion onshore bond becoming puttable in 3Q 2019,
and its committed land premiums through June 2020. The company's
cash balance of RMB37.85 billion at the end of 2018 covered 79%
of its short-term debt, a mild increase from 75% at
the end of 2017.
Yango Group Co., Ltd 's B2 corporate family rating reflects
the company's quality and geographically diversified land bank,
large scale and strong sales execution.
Yango has diversified land reserves in four key regions and selected strategic
cities in China, with no particular city representing more than
15% of its total reserves gross floor area (GFA) at 31 December
2018.
At the end of 2018, over 80% of its land reserves in terms
of GFA were located in Tier 1 and Tier 2 cities such as Fuzhou,
Xiamen, Guangzhou, Shanghai, Chengdu, Xi'an,
where property demand is generally strong.
On the other hand, Yango's rating is constrained by the company's
high debt leverage driven by its sizable land acquisitions to support
its rapid growth and expansion into new regions.
Yango Justice International Limited's B3 senior unsecured ratings are
one notch lower than Yango's CFR to reflect the risk of structural
subordination. This subordination risk reflects the fact that the
majority of Yango's claims are at its 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.
Yango's ratings could be upgraded if the company improves its liquidity
and debt leverage, while maintaining its strong contracted sales
growth. Credit metrics that indicate a possible upgrade include
(1) revenue/adjusted debt above 60%-65%; (2)
adjusted EBIT/interest above 2x; and (3) cash/short-term debt
above 1.25x, on a sustained basis.
On the other hand, the outlook on Yango could return to stable if
the company fails to improve its liquidity or credit metrics, with
adjusted EBIT/interest below 1.25x-1.50x or revenue/adjusted
debt failing to trend towards 60%-65% on a sustained
basis.
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.
Founded in 1995 in Fuzhou, Yango Group Co., Ltd is
a Chinese property developer that focuses on the Greater Fujian and Yangtze
River Delta regions. The company was listed on the Shenzhen Stock
Exchange in 2002 with a market capitalization of RMB24 billion ($3.5
million) as of 25 September 2018.
Yango's operations are mainly focused on mass-market residential
property development. The company had a total land bank of around
44.18 million square meters (sqm) as of 31 December 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.
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Regulatory disclosures contained in this press release apply to the credit
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Please see www.moodys.com for any updates on changes to
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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.
YuYing (Celine) Yang
Asst Vice President - 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
