Hong Kong, January 23, 2020 -- Moody's Investors Service has upgraded Yango Group Co.,
Ltd's corporate family rating (CFR) to B1 from B2 and the backed senior
unsecured rating on the existing notes issued by Yango Justice International
Limited and guaranteed by Yango to B2 from B3.
The outlook on the ratings is stable.
RATINGS RATIONALE
"The upgrade reflects our expectation that Yango will continue to
strengthen its financial profile by further improving its debt maturity
profile, limiting debt growth and maintaining discipline in its
land acquisitions," says Celine Yang, a Moody's Assistant
Vice President and Analyst.
Yango's improved debt maturity profile has also helped reduce funding
risk, with its short-term debt accounting for 28%
of total reported debt at 30 September 2019, down from 43%
at 31 December 2018.
Moreover, the company's trust loan exposure reduced to 28%
from 52.6% of total reported debt over the same period.
This improved funding structure will help the company reduce its funding
costs as well as increase its financial stability.
Moody's expects that the company's total adjusted debt growth will
be marginal in 2019, staying within 5%-6% over
the coming 12-18 months. On 21 January 2020, the company's
estimated total reported debt reduced by 1% to RMB111.5
billion in 2019 from RMB112.6 billion in 2018.
Such constrained debt growth is supported by the company's disciplined
land acquisitions, and Moody's expects Yango will continue
to constrain its annual land spending, maintaining it within 50%
of its cash received from annual property sales.
Yango has recorded strong contracted sales growth over the past two to
three years, as reflected by 30% year-on-year
sales growth to RMB211 billion in 2019 and 78% year-on-year
growth to RMB163 billion in 2018. Such scale is comparable with
B1-rated Chinese property peers and will support the company's
liquidity and revenue growth over the next 12-18 months.
Moody's expects that Yango's debt leverage — as measured by revenue/adjusted
debt — will trend towards 60%-70% over the
next 12-18 months from 50% for the 12 months ended 30 June
2019, driven by expected revenue growth. Meanwhile,
its interest coverage -- as measured by adjusted EBIT/interest
-- will improve to around 2.5x-2.9x
from 2.3x over the same period, again driven by expected
revenue growth and stable profit margins.
Yango's liquidity profile is good. Moody's expects the company's
cash holdings, together with its cash flow generated from operating
activities, will be sufficient to cover its maturing debt,
including onshore puttable bonds of RMB6.4 billion, and its
committed land payments over the next 12-18 months.
The company's cash to short-term debt has improved to 136%
at 30 September 2019 from 79% at the end of 2018.
Yango's B1 corporate family rating reflects the company's good-quality
land reserves, geographically diversified land bank, large
scale and strong sales execution. The company has diversified its
land reserves across four key regions in China, selecting key strategic
cities with no one city representing more than 15% of its total
reserves by gross floor area (GFA) at 30 June 2019. In addition,
over 80% of its land reserves in terms of GFA were located in Tier
1 and Tier 2 cities such as Fuzhou, Xiamen, Guangzhou,
Shanghai, Chengdu, Xi'an, where property demand is generally
strong.
On the other hand, Yango's rating is constrained by the company's
improving but still high debt leverage, accumulated through its
sizable land acquisitions to support the company's rapid growth
and expansion strategy.
The stable outlook reflects Moody's expectation that over the next
12-18 months Yango will (1) execute its sales plan; (2) remain
disciplined in land acquisitions and improve its leverage; and (3)
maintain good liquidity.
In terms of governance considerations, Moody's has taken into
account the company's concentrated ownership by Fujian Yango Group Co.,
Ltd and its person acting in concert, who together owned a 44.5%
as of 2 January 2020, with 90.85% of these shares
pledged. This risk is incorporated in the B1 CFR.
This risk is partially mitigated by (1) the presence of four independent
directors on Yango's 11-member board of directors; (2)
the presence of an audit committee, remuneration committee,
nomination committee and strategic committee to assist the board of directors;
(3) the company's disclosure of material related-party transactions
as required by the relevant code for companies listed on the Shenzhen
Stock Exchange; and (4) the company's stable dividend policy,
with its payouts ranging from 7.52% to 16.46%
of net profits during 2013-2019.
Yango Justice International Limited's B2 senior unsecured ratings are
one notch lower than Yango's CFR to reflect structural subordination risk,
which stems from the fact that the majority of Yango'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.
Moody's could upgrade Yango's ratings if the company (1) maintain
disciplined in its land acquisition and financial management; (2)
continues to improve its funding channels and maintains good liquidity;
(3) improves its debt leverage while maintaining contracted sales growth.
Credit metrics that would indicate a possible upgrade include (1) revenue/adjusted
debt rising above 70%-80%; and (2) adjusted
EBIT/interest staying above 3x.
Moody's could downgrade Yango's ratings if (1) it generates
weak contracted sales; (2) its profit margin declines materially;
(3) its liquidity weakens, such that cash/short-term debt
falls below 1.0x; and/or (4) its debt leverage or exposure
to trust financing rises materially.
Credit metrics indicative of a rating downgrade include its EBIT/interest
coverage falling below 2.0x and/or adjusted revenue/debt falling
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.
Founded in 1995 in Fuzhou, Yango Group Co., Ltd is
a Chinese property developer that focuses on the Greater Fujian and Yangtze
River Delta regions. The company was listed on the Shenzhen Stock
Exchange in 2002. Yango's operations are mainly focused on mass-market
residential property development. The company had a total land
bank of around 44 million sqm at 30 June 2019.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
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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
