Duration Financial News, on December 1, Moody's will Seazen Group Limited, referred to as "Seazen Development", 01030HK) and New Metro Global Limited ("Metro Global") have been downgraded by the following ratings:
1.Downgraded Metro Development's Corporate Family Rating (CFR) to 'B2' from 'B1'
2.Issued by Seazen Global and a share of Seazen Holdings Co. or Seazen Holdings Group,Ltd., referred to as "Seazen Holdings", 601155SH) downgraded the backed senior unsecured rating of the secured bonds to 'B3' from 'B2'
Meanwhile, Moody's maintained a negative outlook.
Kelly Chen, vice president and senior analyst at Moody's, said: "The downgrade reflects the weakening of Seazen's credit metrics, liquidity buffers and financial flexibility over the next 12-18 months due to the continued decline in property sales and limited access to finance. ”
The negative outlook reflects uncertainty about the company's ability to resume operations and liquidity buffers over the next 12-18 months. Chen added.
Rating justification. Seazen's 'B2' family rating reflects the company's brand maturity and track record in the Yangtze River Delta region, as well as the growing recurring rental income from its sizable portfolio of investment properties (IPS).
However, the rating is constrained by factors such as a reduction in the company's real estate development business, limited financial flexibility following an increase in asset burdens, and weakening credit metrics for the next 12-18 months. The rating also takes into account its significant exposure to joint ventures (JVS), which undermines its corporate transparency.
Against the backdrop of continued weak housing demand in lower-tier cities where Moody's main business operates, Seazen's total contracted sales will fall from CNY116 billion in 2022 to approximately CNY78 billion in 2023 and CNY65 billion to RMB70 billion in 2024 against the backdrop of continued weakness in housing demand in lower-tier cities, where its main business operates.
Moody's assesses the new city development as illuminate, supported by the company's new funding through the mortgage of its shopping malls and more recently** its cinema assets. The new financings, together with the company's RMB21 billion in cash and cash equivalents as of the end of June 2023, will support its debt repayments, including US$800 million of offshore senior notes maturing or redeemable between now and the end of June 2025 and onshore bonds totaling approximately RMB2 billion.
Moody's expects Metro to become increasingly reliant on secured bank borrowings to settle some of its maturing debt, which will undermine its financial flexibility. This risk is mitigated to some extent by the company's growing recurring revenues from its established investment properties with higher yield visibility. This income** also mitigates the cyclical risks associated with the property development business.
At the same time, Seazen's credit indicators will continue to weaken as contracted sales decline. Specifically, its debt leverage, as measured by the ratio of adjusted debt EBITDA, will increase to 70x to 75x (trailing 12 months ending June 2023: 5.)5 times). Over the same period, its adjusted EBIT interest coverage ratio will also increase from 27 times to 20 times or so.
Due to structural subordination risk, the company's senior unsecured notes are rated "B3", one notch below the corporate family rating. This risk reflects the fact that the majority of claims arise in operating subsidiaries and have priority over Metro Group's senior unsecured claims in the event of insolvency. In addition, the holding company lacks significant structural subordination mitigation factors. As a result, the ** rate of claims by the holding company may be reduced.
In terms of environmental, social and governance (ESG) factors, Seazen's ownership is concentrated in the former chairman, who holds 63 percent of the company3% of the shares. The Company has three independent non-executive directors on its seven-member Board of Directors and has adopted other internal governance structures and standards in accordance with the requirements of the Corporate Governance Code for listed companies on the Hong Kong ** Stock Exchange. The above factors mitigate the governance risks.
Factors that may cause an upgrade or downgrade.
Given the negative outlook, Moody's is unlikely to upgrade Metro Development's rating. However, if the company stabilizes its contracted sales while maintaining sufficient liquidity and improving access to its capital market funding channels, Moody's may revise its outlook to stable.
Credit indicators that may indicate a stable outlook include an EBIT interest coverage ratio consistently above 2.The ratio of 25 times to debt EBITDA is consistently below 75 times).
On the other hand, if the liquidity and financing channels of the new town development deteriorate further;The decline in its contracted sales exceeded Moody's expectationsOr its credit indicators weaken, and the EBIT interest coverage ratio drops to 1.Below 5 times, the debt EBITDA continued to rise to 90 times, Moody's may downgrade its rating.
Downgrade pressure may also increase if the contingent liabilities associated with the company's joint ventures or the likelihood that the group will provide financial support to the joint ventures increases significantly.
Seazen Development Holdings*** is principally engaged in the residential real estate development business in China. The company was founded in 1996 by Wang Zhenhua, former chairman of Seazen Development. Wang Zhenhua is the largest shareholder of Seazen Development, holding 633% of the shares, which has been engaged in real estate development business in China (A1 stable) since 1993.