Hong Kong, January 28, 2019 -- Moody's Investors Service has upgraded to Ba3 from B1 Road King Infrastructure
Limited's corporate family rating (CFR).
At the same time, Moody's has upgraded to Ba3 from B1 the
senior unsecured ratings of bonds issued by RKI Overseas Finance 2016
(A) Limited, RKI Overseas Finance 2016 (B) Limited, RKP Overseas
Finance 2016 (A) Limited and RKI Overseas Finance 2017 (A) Limited.
These entities are wholly owned subsidiaries of Road King.
The outlook on all the ratings above is stable.
RATINGS RATIONALE
"The ratings upgrade reflects our expectation that Road King's credit
metrics will improve over the next 12-18 months on the back of
strong contracted sales growth," says Cedric Lai, a
Moody's Assistant Vice President and Analyst.
"The upgrade of the ratings also reflects Road King's improved
track record in the property development business in recent years,"
adds Lai.
Road King's leverage, as measured by revenue/adjusted debt,
will trend towards 75%-80% over the next 12-18
months from around 60% for the 12 months ended 30 June 2018.
The improvement in leverage will be driven by Road King's strong revenue
growth and cash flow from property sales; factors which will help
control debt growth. Leverage will also improve, based on
Moody's expectation that Road King will control capital expenditure,
given its prudent financial discipline.
The company reported a 31% year-on-year increase
in contracted sales to RMB32.1 billion in 2018, after recording
a robust 40% growth in 2017. Moody's expects Road
King will achieve around 15%-20% year-on-year
contracted sales growth to around RMB37-RMB40 billion in 2019,
supported by its sufficient land resources, especially in the Yangtze
River Delta region.
Moody's expects Road King's gross profit margin to moderate to 33%-35%
over the next 12-18 months from the high base of 47% recorded
in the first half of 2018 and 40% in 2017. The high gross
margins recorded during these periods were due to the delivery of certain
high-margin projects in the Yangtze River Delta and the effect
should reduce over time.
Consequently, Moody's expects that Road King's EBIT/interest
will normalize to 4.0x-4.5x over the next 12-18
months from a robust 5.4x for the 12 months ended 30 June 2018.
But such a level would be appropriate for its Ba3 CFR.
Road King's stable ratings outlook reflects Moody's expectation
that Road King will maintain its prudent financial management, while
growing its property development and toll road businesses; thereby
preserving stable credit metrics and adequate liquidity.
Moody's expects that Road King's cash receipts from toll roads
will grow by 10%-15% over the next 12-18 months
to around HKD800-HKD850 million on the back of a likely increase
in its toll road traffic volume.
Consequently, cash receipts from toll roads, together with
the rental income from its investment properties, will cover around
50% of the company's total interest expenses.
Road King's liquidity profile is strong. Its cash/short-term
debt was at 208% at 30 June 2018. And, at 30 June
2018, its cash holdings, including restricted cash of HKD10.2
billion, and operating cash flow were sufficient to cover its short-term
debt of HKD4.9 billion and committed land payments.
Road King's CFR of Ba3 reflects the company's track record in property
development, and its cautious approach to land acquisitions and
financial management. As a result, the company has maintained
adequate liquidity throughout business cycles. The rating also
takes into account the stable cash flow from the company's toll road investments,
as well as its stable debt leverage and financial metrics that are comparable
with those of its Ba3-rated peers in the Chinese property industry.
At the same time, the rating is constrained by the geographic concentration
of the company's land bank, as well as the execution risk associated
with any new toll road acquisition.
Upward ratings pressure could emerge if Road King (1) grows its scale
without sacrificing profit margins; (2) grows its toll road dividends
and improves its interest coverage from recurring income to above 0.6x-0.7x
on a sustained basis; (3) maintains stable credit metrics,
with homebuilding EBIT/interest above 4.0x-4.5x and
revenue/debt of 90% or more; and (4) maintains adequate liquidity.
On the other hand, downward ratings pressure could emerge,
if (1) Road King's liquidity deteriorates because of weaker sales,
aggressive land or other acquisitions; or (2) the operating performance
of the company's property segment deteriorates. Credit metrics
indicative of downward ratings pressure include homebuilding EBIT/interest
below 2.5x-3.0x or revenue/debt below 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.
Listed in Hong Kong, Road King Infrastructure Limited invests in
toll road projects comprising five expressways across four provinces in
China: Anhui, Hebei, Hunan and Shanxi. In addition,
at 30 June 2018, the company had a property development portfolio
with a land bank of 8.5 million square meters across the Bohai
Rim, Yangtze River Delta, Greater Bay Area (including Hong
Kong), Henan and Hubei Province.
Wai Kee Holdings Limited and Shenzhen Investment Limited are the largest
shareholders of the company. At 30 June 2018, these two companies
owned 42% and 27% equity interests in Road King, respectively.
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
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the rated entites are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
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tab on the issuer/entity page and for details of Moody's Policy
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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.
Cedric Lai
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
