Hong Kong, October 08, 2019 -- Moody's Investors Service has upgraded Jiayuan International Group
Limited's corporate family rating (CFR) to B2 from B3 and the senior unsecured
rating on its USD notes to B3 from Caa1.
The outlook on the ratings is stable.
RATINGS RATIONALE
"The upgrade reflects our expected reduction in Jiayuan's change
of control risks as a result of the completion of asset injection and
reduced share pledge loans by its chairman," says Josephine
Ho, a Moody's Vice President and Senior Analyst.
The equity-funded asset injection by Mr. Shum Tin Ching,
the chairman and the largest shareholder of the company was completed
in August 2019. And, over the last two months, Mr.
Shum has reduced his share pledge loans by 17%.
These two developments have reduced the amount of the chairman's
shares pledged for financing to 15% of the company's outstanding
shares versus Mr. Shum's 69% ownership in the company
as of 30 September 2019. Such a situation, in turn,
has reduced the risk of a change of control that could be triggered by
a reduction in the chairman's stake in Jiayuan.
"In addition, the completion of the asset injection will support
Jiayuan's contracted sales growth and liquidity over the next 12-18
months, and broaden its geographic coverage to levels that are comparable
to its B2-rated China property peers," adds Ho.
Moody's expects that Jiayuan's contracted sales will grow to RMB25-RMB30
billion over the next 12-18 months from RMB20 billion in 2018.
In the first eight months of 2019, the company's contracted
sales grew 50% to RMB16 billion.
Moody's also expects that Jiayuan's projected credit metrics
will support its B2 CFR. Specifically, its revenue/adjusted
debt will improve to around 70% and EBIT/interest will maintain
at around 3.0x over the next 12-18 months versus 68%
and 3.2x for the 12 months to 30 June 2019.
In addition, the B2 CFR has considered the company's track record
in its core market of Jiangsu Province, and its low-cost
and quality land bank, tempered by its moderate operating scale
and the execution risks associated with its rapid growth plan.
With respect to environmental, social, and governance risks,
Moody's has considered the risks from concentrated ownership and
share pledge financing.
Given the company's listed status, Jiayuan is subject to the
regulations of the Hong Kong Listing Rules and Securities and Future Ordinance.
In addition, Mr. Shum has shown commitments to inject assets
to strengthen the company's operation and equity base, as
well as to reduce his share pledge loan to lower the risk of a change
in control.
Jiayuan's liquidity is adequate. Moody's expects that
the company's cash holdings, together with its contracted
sales proceeds after deducting basic operating cash flow items,
will enable the company to meet its refinancing needs over the next 12-18
months. Jiayuan reported cash holdings totaling RMB5.7 billion
as of 30 June 2019, which covered 117% of its short-term
debt. The company's refinancing of maturing USD bonds over
the last 2-3 months has also lengthened its debt maturity profile.
The B3 senior unsecured rating of the USD notes is one notch lower than
the CFR, due to structural subordination risk. This risk
reflects the fact that the majority of claims are at the operating subsidiaries.
These claims have priority over Jiayuan's senior unsecured claims in a
bankruptcy scenario. In addition, the holding company lacks
significant mitigating factors for structural subordination. As
a result, the likely recovery rate for claims at the holding company
will be lower.
The stable ratings outlook reflects Moody's expectation that (1) Mr.
Shum will not materially increase his share pledge financing, (2)
the company's liquidity will remain adequate, with continuing
access to the onshore and offshore loan and debt capital markets;
and (3) the company will grow its sales and maintain cash collection as
planned over the next 12- 18 months.
Moody's could upgrade the ratings if Jiayuan (1) grows its business,
while achieving its credit metrics of adjusted revenue/debt above 70%
and EBIT/interest higher than 3.0x on a sustainable basis;
(2) maintains adequate liquidity, with cash/short-term debt
consistently above 1.5x; and (3) keeps the risk of a change
of control at a low level.
But Moody's could downgrade the ratings if Jiayuan's (1) liquidity
profile weakens; (2) risk of a change in control increases;
or (3) contracted sales or revenue prove weaker than Moody's had
expected, leading to a deterioration in the company's credit
metrics.
Credit metrics indicative of a ratings downgrade include (1) adjusted
revenue/debt below 55%, EBIT/interest below 2x, or
cash/short-term debt below 1.0x, all on a consistent
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.
Jiayuan International Group Limited develops mass-market residential
properties mainly in Jiangsu and Anhui provinces. The company had
a total land bank of around 13 million square meters at the end of August
2019. It also develops and operates commercial properties alongside
its residential property projects.
REGULATORY DISCLOSURES
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
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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,
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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
the lead rating analyst and to the Moody's legal entity that has issued
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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.
Josephine Ho
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
