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Rating Action:

Moody's upgrades Ronshine's CFR to B1, outlook stable

 The document has been translated in other languages

09 Apr 2019

Hong Kong, April 09, 2019 -- Moody's Investors Service has upgraded to B1 from B2 Ronshine China Holdings Limited's corporate family rating (CFR), and to B2 from B3 the senior unsecured rating on its existing notes.

The rating outlook is stable.

RATINGS RATIONALE

"The ratings upgrade reflects our expectation that Ronshine's credit metrics will improve over the next 12-18 months, driven by strong growth in revenue," says Cedric Lai, a Moody's Vice President and Senior Analyst.

"The upgrade also reflects our expectation that Ronshine will maintain its financial discipline and continue to execute its deleveraging plan while pursuing an expansion strategy in the coming 12-18 months," adds Lai.

Ronshine's total contracted sales grew 13.4% year-on-year to RMB25.5 billion in the first quarter of 2019, after recording robust 73% year-on-year growth to RMB121.9 billion for the full year 2018. These strong contracted sales should support the company's revenue growth over the next 12-18 months.

Accordingly, Moody's expects that Ronshine's debt leverage — as measured by revenue/adjusted debt — will trend towards 60%-65% over the next 12-18 months from 52% in 2018, and its interest coverage -- as measured by adjusted EBIT/interest - will improve to 2.5x-3.0x from around 2.1x over the same period.

Ronshine targets to lower the company's reported net gearing ratio to 70%-90% by the end of 2019. As of the end of 2018, this ratio was 105%, an improvement from 159% at the end of 2017.

The company's total reported debt decreased 10% to RMB62.5 billion at the end of 2018 from RMB69.5 billion at the end of 2017, driven in part by the slowdown in its pace of land acquisitions in 2018.

Moody's expects Ronshine to spend a moderate land premium of around RMB30 billion in 2019, which is around 40%-45% of its contracted sales proceeds over the same period.

In addition, the company conducted three share placements -- in October 2017, June 2018 and April 2019, respectively -- raising HKD3.5 billion in total, which helped improve its capital structure.

Ronshine's liquidity is adequate. Its cash/short-term debt improved to 101% at the end of 2018 from 94% at the end of 2017, largely driven by the increase in cash and deposits (including restricted cash) to RMB25.0 billion at the end of 2018 from RMB20.5 billion at the end of 2017.

Ronshine's B1 CFR continues to reflect its fast growing scale and its track record of developing properties in the Yangtze River Delta region and Fujian Province. The B1 CFR also takes into account the company's adequate liquidity, strong market position and strong sales execution ability in its key markets, including Hangzhou, Shanghai and Fuzhou.

On the other hand, the rating is constrained by its high debt leverage, which results from the company's rapid expansion strategy.

Ronshine's B2 senior unsecured rating is one notch lower than its CFR to reflect the risk of structural subordination. This subordination risk reflects the fact that the majority of Ronshine'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.

Ronshine's rating could be upgraded if the company (1) demonstrates sustained growth in its contracted sales and revenue through economic cycles without sacrificing its profitability; (2) remains prudent in its land acquisitions and financial management; (3) improves its credit metrics, such that its EBIT/interest registers at least 3.0x and revenue/adjusted debt rises to 75%-80% or above on a sustained basis; and (4) maintains adequate liquidity.

On the other hand, the company's ratings could come under downward pressure if Ronshine: (1) generates weak contracted sales; (2) suffers from a material decline in its profit margins; (3) experiences an impairment of its liquidity position, such that cash/short-term debt falls below 1.0x; and/or (4) materially increases its debt leverage.

Credit metrics indicative of a ratings downgrade include EBIT/interest coverage below 2.0x, and/or adjusted revenue/debt below 50%-55% 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.

Ronshine China Holdings Limited was incorporated in the Cayman Islands in 2014 and listed on the Hong Kong Stock Exchange in January 2016. As a property developer, it focuses on mid-to high-end residential units in Fujian Province, the Yangtze River Delta, the Pearl River Delta, Central China and the Bohai Sea Region. The company was founded by its Chairman, Mr. Ou Zonghong, who owns 60.3% of Ronshine.

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.

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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
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

No Related Data.
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