Hong Kong, January 22, 2021 -- Moody's Investors Service has upgraded Seazen Group Limited's corporate
family rating (CFR) to Ba1 from Ba2 and its senior unsecured rating to
Ba2 from Ba3.
At the same time, Moody's has upgraded to Ba1 from Ba2 Seazen Holdings
Co., Ltd.'s CFR and the backed senior unsecured
rating on the bonds issued by New Metro Global Limited and guaranteed
by Seazen Holdings.
All outlooks are stable.
Seazen Holdings is a 67.2%-owned subsidiary of Seazen
Group, accounting for 99.6% of Seazen Group's
revenues in the first half of 2020 and 86.9% of its debt
as of the end of June 2020. The two companies are collectively
referred to as "Seazen".
"The upgrade of the CFRs to Ba1 reflects Seazen's improved credit
profile and our expectation that Seazen will continue to grow its contracted
sales and recurring income with financial discipline, which in turn
will allow it to maintain its strong credit metrics and positions the
two companies' CFRs at the strong end of the Ba rating level,"
says Kaven Tsang, a Moody's Senior Vice President.
"The upgrade also considers the fact that Seazen's cash flow
stability and debt-servicing ability will continue to improve on
the back of growing rental income from its investment property portfolio,"
adds Tsang.
RATINGS RATIONALE
The Ba1 CFRs reflect Seazen's solid sales execution ability,
sizable operation scale and growing stream of recurring rental income.
At the same time, the CFRs are constrained by Seazen's geographic
concentration in the Yangtze River Delta area and exposure to joint-venture
(JV) businesses.
Seazen's solid sales execution ability has been demonstrated by
its ability to restore its contracted sales growth after the disruptions
caused by the largest shareholder's misconduct in H2 2019 and COVID-19
in H1 2020. Its contracted sales grew 20.3% in the
fourth quarter of 2020 compared to a year ago, following a 17.5%
decline in the first nine months of 2020. For full year 2020,
its contracted sales fell 7% to RMB251 billion.
Moody's expects Seazen will grow its business with financial discipline,
such that its contracted sales will grow 5%-10% annually
in the next 1-2 years while its annual debt growth will remain
around 10%. As a result, Seazen Group's revenue/adjusted
debt and EBIT/interest coverage will stay strong at 105%-110%
and 4.0x-4.5x respectively over the next 1-2
years, compared with 91% and 4.3x for the 12 months
ended June 2020.
Similarly, Seazen Holdings' revenue/adjusted debt and EBIT/interest
coverage will stay robust at 110%-115% and 4.5x-5.0x
respectively over the next 1-2 years, compared with 109%
and 4.9x for the 12 months ended September 2020.
Additionally, Moody's expects Seazen's rental income
(excluding income from commercial property management services) to grow
to RMB4.5 billion-RMB6.0 billion over the next 1-2
years from our estimate of around RMB3 billion in 2020 and RMB2.3
billion in 2019. As a result, Seazen Group's rental
income/interest coverage will strengthen to 60%-70%
over the next 1-2 years from 38% in 2019. Similarly,
Seazen Holdings' rental income/interest coverage will improve to
65%-75% from 40% over the same period.
Such financial profiles support the Ba1 CFRs.
Seazen's liquidity remains good, supported by its ample amount of
cash holdings. Moody's expects Seazen's cash holdings,
together with its cash flow from operating activities, will be enough
to cover its maturing debt (including onshore puttable bonds) and committed
land payments over the next 12-18 months.
Moody's has also considered the following environmental, social
and governance (ESG) factors in its assessment.
From a governance perspective, the companies' ownership is
concentrated in its former chairman, who holds a 68.0%
stake in Seazen Group. This risk is mitigated by Seazen's
established management team, as well as its good institutional governance
structures and standards as required by the Hong Kong Stock Exchange and
the Shanghai Stock Exchange.
Seazen Group's Ba2 senior unsecured bond rating is one notch lower than
its CFR because of structural subordination risk. Most of Seazen
Group's claims are at the subsidiary level 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.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlooks reflect Moody's expectation that Seazen will
maintain its strong credit metrics, financial discipline and good
liquidity while pursuing growth in contracted sales and rental income
in the next 1-2 years.
The ratings of Seazen Group and Seazen Holdings could be upgraded if they
further diversify their land banks in terms of geographic location and
sustain their contracted sales and rental income growth, while maintaining
strong financial and liquidity profiles, with rising rental income
that can largely cover gross interest expenses.
A significant reduction in contingent liabilities associated with JVs
or a lower likelihood of providing funding support to JVs could also be
positive to the ratings.
The ratings of Seazen Group and Seazen Holdings could be downgraded if
their contracted sales growth slows or they pursue aggressive growth,
such that their credit metrics weaken with EBIT/interest coverage falling
below 4.0x, revenue/adjusted debt falling below 75%-80%,
or rental income/interest under 50%, all on a sustained basis;
or their liquidity weakens, as reflected by cash/short-term
debt falling below 125%.
Downward pressure could also increase if the companies' contingent
liabilities associated with JVs or the likelihood of providing funding
support to JVs increases significantly.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Seazen Group Limited operates through its 67.2%-owned
mainland subsidiary, Seazen Holdings, and engages primarily
in residential development in China. Seazen Group was founded in
1996 by Wang Zhenhua, who is the former chairman of Seazen Group
and Seazen Holdings. Wang Zhenhua is the largest shareholder of
Seazen Group, holding a 68.0% stake in the company,
and has been involved in the property development business in China (A1
stable) since 1993. The company had a land bank spread across 115
cities in China, with a total gross floor area (GFA) of around 137.1
million square meters at the end of June 2020.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
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Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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Kaven Tsang
Senior Vice President
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
