Hong Kong, September 12, 2019 -- Moody's Investors Service ("Moody's") has upgraded to Ba1 from Ba2 Shimao
Property Holdings Limited's ("Shimao") corporate family rating (CFR).
The rating outlook is stable.
RATINGS RATIONALE
"The upgrade reflects our expectation that Shimao's credit
metrics will strengthen over the next 12-18 months, driven
by strong growth in revenue and contracted sales," says Celine
Yang, a Moody's Assistant Vice President and Analyst.
"In addition, the upgrade reflects our expectation that the
diversified income from Shimao's commercial properties, hotels
and property management business, coupled with its prudent financial
management, will help it weather the challenging conditions in China's
property industry," adds Yang, who is also Moody's
Lead Analyst for Shimao.
Moody's expects Shimao's leverage -- as measured by revenue/adjusted
debt -- will trend toward 90%-95% over the next
12-18 months from 76% for the 12 months ended June 2019,
supported by healthy revenue growth following strong contracted sales
in the past one to two years.
At the same time, Shimao's interest coverage -- as measured
by EBIT/interest -- will likely improve to 4.5x-5.0x
over the next 12-18 months from 3.9x for the 12 months ended
June 2019, supported by stable profit margins. In addition,
Shimao's growing income from non-property development businesses,
including rental income from commercial buildings, hotels,
and other income from property management will enhance the stability of
its interest coverage.
Shimao has a track record of strong sales execution. It reported
41% growth in contracted sales in the first eight months of 2019,
following robust 75% year-over-year growth in 2018.
Moody's expects Shimao to deliver contracted sales growth of around
20% over the next 12-18 months, backed by the company's
sizeable RMB300 billion of salable resources for 2H 2019. Shimao's
strong market position and access to funding also position it well to
benefit from the ongoing industry consolidation amid tight credit conditions
and a challenging operating environment in China's property industry.
In addition, Shimao's well-located land bank will support
its business growth over the coming 12-18 months. Around
60% of Shimao's land bank is located in tier 1 and tier 2
cities, where housing demand remains strong. Another 28%
of its land bank is located in strong tier 3 and tier 4 cities,
such as Foshan, Zhao Qing, where generally favorable economic
conditions support housing demand.
Shimao's Ba1 CFR reflects its (1) strong sales execution through
the property cycles, (2) good geographic coverage and product mix
with diversified land reserves, (3) large operating scale,
status as one of the top developers in China in terms of contracted sales.
The CFR also reflects the growing income from the company's portfolio
of quality investment properties and hotels, as well as its track
record of strong access to domestic and offshore funding.
On the other hand, the rating is constrained by the company's
moderate credit metrics, although these metrics are likely to improve
gradually over the next 12-18 months.
Shimao's liquidity position is good. The company's cash/short-term
debt registered 163% as of the end of June 2019, mildly improved
from 158% at the end of 2018.
Moody's expects the company will maintain good liquidity through
proactive liquidity management, and that it will retain its good
access to various funding channels, including onshore bonds,
offshore syndicated loans and bank loans and capital market instruments.
Moody's has considered the concentrated ownership by Shimao's key
shareholder, Ms. Hui Wing Mau, who held a total 69.6%
stake in the company as at 9 August 2019. However, the company's
established internal governance structures and standards, as required
under the Corporate Governance Code for companies listed on the Hong Kong
Stock Exchange, partly mitigates the risk of such ownership concentration.
In particular, it has three independent non-executive directors
(INEDs) out of a total seven board of directors, and its board has
established three committees with specific written terms of reference
to oversee particular aspects of the company's affairs. In
addition, audit and remuneration committees are chaired by INEDs
and at least 75% of the members of its three committees are INEDs.
Shimao' ratings could be upgraded if it (1) sustains its sales growth
and profit margins while demonstrating strong financial discipline;
(2) maintains a strong liquidity profile, such that cash/short-term
debt exceeds 150%; and (3) improves its credit metrics,
such that adjusted EBIT/interest coverage rises above 4.5x-5.0x
and revenue/adjusted debt exceeds 95%-100% on a sustained
basis.
However, Moody's could downgrade the ratings if (1) it becomes
less financially prudent in pursuit of business growth; (2) its sales
and liquidity positions weaken, such that cash/short-term
debt falls below 125%; (3) its gross profit margins weaken
below 25%; (4) its debt leverage deteriorates, with
revenue/adjusted debt falling below 75%; or (5) its interest
coverage weakens, such that EBIT coverage of interest drops below
3.0x-3.5x on a sustained basis.
The principal methodology used in this rating 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.
Shimao Property Holdings Limited (Shimao) is a Grand Cayman-incorporated
Chinese property developer that was listed on the Hong Kong Stock Exchange
in July 2006. It develops residential properties and owns a portfolio
of investment properties, including hotels. As of the end
of June 2019, the company, together with its 58.9%-owned
Shanghai A-share listed subsidiary, Shanghai Shimao Co.,
Ltd., held a gross land bank of 64 million square meters
(sqm) in 101 cities in China. Shanghai Shimao mainly develops commercial
properties and held an attributable land bank of around 3.2 million
sqm at the end of June 2018.
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,
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
rating and, if applicable, the related rating outlook or rating
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Please see www.moodys.com for any updates on changes to
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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.
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
