Hong Kong, November 26, 2020 -- Moody's Investors Service has upgraded the corporate family rating
(CFR) of CIFI Holdings (Group) Co. Ltd. to Ba2 from Ba3.
Moody's has also upgraded the senior unsecured debt rating on its
existing notes to Ba3 from B1.
The outlook has been revised to stable from positive.
"The upgrade reflects our expectation that CIFI's credit metrics will
improve over the next 12-18 months, supported by strong revenue
growth and controlled debt growth," says Cedric Lai, a Moody's
Vice President and Senior Analyst.
Specifically, CIFI's revenue growth will be driven by its
strong sales execution. Its contracted sales grew 12% to
RMB174.4 billion in the first ten months of 2020 compared to the
same period last year, despite the negative impact on sales from
coronavirus outbreak, especially in the first half of the year.
This comes after the company grew 32% to RMB200.6 billion
for the full year in 2019.
"The upgrade also reflects CIFI's more geographically diversified
operations and continued strong access to funding, which will enable
the company to deliver solid business growth over the next 12-18
months," adds Lai.
For example, its contracted sales in Yangtze River Delta area fell
to 47% of its total sales for the first half of 2020 from 62%
in 2017, while contributions from central China, the Bohai-Rim
region and southern China increased during the same period. Its
land bank coverage has grown to 80 cities as of the end of June 2020,
up from 71 and 60 in 2019 and 2018 respectively.
At the same time, the company continues to demonstrate prudent financial
management with a balanced debt maturity profile and solid balance sheet
liquidity.
RATINGS RATIONALE
CIFI's Ba2 corporate family rating reflects the company's ability
to execute its property development strategy, which is focused on
catering to the housing demand from upgraders in key tier-1 and
tier-2 cities in China (A1 stable). This focus helps the
company achieve rapid asset turnover. The rating also takes into
account the company's good liquidity, expanding scale and growing
diversification.
On the other hand, the rating is constrained by the company's moderate
debt leverage, and material exposure to joint venture (JV) businesses,
which hinders the transparency of its credit metrics. However,
the latter is mitigated by the company's reputable JV partners.
Moody's expects CIFI's debt leverage -- as measured by revenue/adjusted
debt -- will improve to 65%-75% over
the next 12-18 months, from 46% for the 12 months
ended June 2020. This is driven by Moody's expectation for
robust revenue recognition on the back of the company's strong contracted
sales over the past two to three years, as well as its disciplined
approach to pursuing growth and controlling debt increase.
Meanwhile, Moody's also expects CIFI's EBIT/interest will improve
to 3.1x-3.6x from 2.5x over the same period,
driven by higher earnings and declining interest costs.
Moody's believes CIFI's sizable salable resources, strong sales
execution and solid housing demand in the company's core markets will
enable the company to further grow its contracted sales to RMB220billion
- RMB240 billion over the next 12-18 months.
CIFI's liquidity position is good. The company's cash balance of
RMB59.4 billion covered 2.3x of its short-term debt
as of 30 June 2020. Moody's expects the company's cash holdings,
together with expected operating cash inflow, will be able to cover
its maturing short term debt, committed land purchases, dividend
payments, as well as capital spending and payables for its previous
acquisitions, over the next 12-18 months.
CIFI's CFR takes into consideration the concentration of the company's
ownership in its controlling shareholders. Lin Zhong and his family
members collectively held a 54.32% stake in the company
as of 30 June 2020. Moody's has also considered (1) the fact that
the audit and remuneration committees all comprise independent non-executive
directors and can supervise over the company; and (2) the application
of the Listing Rules of the Hong Kong Stock Exchange and the Securities
and Futures Ordinance in Hong Kong to oversee related-party transactions.
Moody's regards the impact of the deteriorating global economic
outlook amid the rapid and widening spread of the coronavirus outbreak
as a social risk under its ESG framework, given the substantial
implications for public health and safety.
The Ba3 senior unsecured debt rating is one notch lower than the corporate
family rating due to structural subordination risk. Majority of
CIFI's claims are at its operating subsidiaries and have priority over
claims at the holding company in a liquidation scenario. In addition,
the holding company lacks significant mitigating factors for structural
subordination. Consequently, the expected recovery rate for
claims at the holding company will be lower.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook reflects Moody's expectation that CIFI will continue
to adopt disciplined financial management to achieve its business plan
and maintain good liquidity over the next 12-18 months.
Moody's could upgrade CIFI's CFR if it successfully executes its sales
plan through the cycles, and maintains strong liquidity and prudent
financial management practices.
Specifically, Moody's could upgrade the rating if CIFI's (1)
revenue/adjusted debt exceeds 80%; and (2) EBIT/interest coverage
is above 4.0x-4.5x, both on a sustained basis.
A significant reduction in contingent liabilities associated with JVs
or a lower likelihood of providing funding support to JVs could also be
credit positive. This could be the result of reduced usage of JVs
or a significant improvement in the financial strength of its JV projects.
On the other hand, Moody's could downgrade the rating if CIFI's
(1) contracted sales deteriorates; (2) credit metrics weaken,
with EBIT/interest coverage falling below 3.0x-3.5x,
or revenue/adjusted debt falling below 65% on a sustained basis;
or (3) liquidity deteriorates, as reflected by cash/short-term
debt falling below 1.25x.
Moody's could also downgrade the rating if the company's contingent liabilities
associated with JVs or the likelihood of providing funding support to
JVs increases significantly. This could be the result of a significant
deterioration in the financial strength and liquidity of its JV projects
or a substantial increase in investment in new JV projects.
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.
CIFI Holdings (Group) Co. Ltd. (CIFI) was incorporated in
the Cayman Islands in May 2011 and listed on the Hong Kong Stock Exchange
in November 2012.
CIFI develops residential and commercial properties in the Yangtze River
Delta, the Pan Bohai Rim and the Central Western and South China
regions. As of 30 June 2020, the company had a presence in
over 80 cities, with an unsold total land bank of 40.1 million
square meters (sqm).
The company was founded in 2000 and was 54.32% owned by
the Lin family as of 30 June 2020.
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.
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Cedric Lai
Vice President - Senior 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
