Moody’s assigns B3 to Fantasia Holdings’ proposed USD bonds

Posted by Sana on 11/13/2016 in Weak Credit | Short Link

Hong Kong, September 27, 2016 — Moodys Investors Service has assigned a B3 senior unsecured debt rating
to Fantasia Holdings Group Co., Limiteds proposed senior
unsecured USD notes.

Fantasia plans to use the proceeds from the proposed notes mainly to refinance
existing indebtedness.

RATINGS RATIONALE

If the proposed notes are issued, Fantasias debt maturity profile
will improve, says Stephanie Lau, a Moodys Assistant Vice
President and Analyst.

Moodys expects the company will use the proceeds to repay its existing
outstanding USD notes.

We also do not expect the proposed notes to have any material impact
on Fantasias credit metrics, says Lau, who is also the Lead
Analyst for Fantasia.

Fantasia has expanded its asset-light businesses through acquisitions,
including Wanda Property Management, while it continues with a cautious
strategy on land acquisition and development.

After accounting for the Wanda acquisition announced in August 2016 and
notes issuance, Moodys expects that EBIT/interest will stay at
around 1.8x-2.0x over the next 12-18 months,
and revenue/debt should register around 50%-52%.

Such levels remain similar to those in FY2015 and are appropriate for
the companys corporate family rating of B2.

The companys liquidity position is sufficient. Cash/short term
debtexcluding the cash on hand of its listed subsidiary,
Colour Life Services Group, Co. Ltd (unrated) increased
to 397% at end-1H 2016 from 133% in 2015.

Fantasias B2 corporate family rating reflects its long track record in
Chengdu and Shenzhen, its diversified development product line in
commercial complexes and high-end residential properties,
and its adequate liquidity.

But the rating is constrained by execution risks in its new markets,
the short track record of its asset-light model, and its
weak credit metrics.

The B3 senior unsecured rating of the proposed notes is one notch below
Fantasias B2 corporate family rating, reflecting structural and
legal subordination.

Its secured and subsidiary debt/total assets was around 18% at
end-June 2016. However, Moodys expects the ratio
to stay above 15% in the coming 12-18 months, because
the company will continue to draw on onshore and/or secured bank loans
to fund its construction and expansion.

Upward pressure on its ratings could emerge if: (1) Fantasias EBIT/interest
coverage improves to 2.5x-3.0x on a sustained basis;
(2) its revenue/adjusted debt stays above 75%-80%;
and (3) it records contracted sales and revenue consistently above RMB10
billion, with a reasonable gross margin of at least 35%-37%.

On the other hand, the ratings undergo a downgrade if its:
(1) sales fall short of Moodys expectations; (2) liquidity position
deteriorates, due to aggressive land acquisitions, weak sales,
or large debt maturities without committed refinancing arrangements;
and (3) cash/short-term debt falls below 1.0x.

EBIT/interest coverage below 1.5x on a sustained basis would also
indicate a potential downgrade.

The principal methodology used in this rating was Homebuilding And Property
Development Industry published in April 2015. Please see the Ratings
Methodologies page on www.moodys.com for a copy of this
methodology.

Fantasia Holdings Group Co., Limited, is a property
developer in China (Aa3 negative). Established in 1996, it
listed on the Hong Kong Stock Exchange in November 2009. At end-June
2016, its land bank totaled 16.8 million square meters in
planned gross floor area including lots under framework agreements
mainly in the Chengdu-Chongqing Economic Zone and the Pearl
River Delta.

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 Moodys
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 providers 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.

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.

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 Moodys 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.

Stephanie Lau
Asst Vice President – Analyst
Corporate Finance Group
Moodys Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong SAR.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD – Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moodys Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong SAR.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moodys assigns B3 to Fantasia Holdings proposed USD bonds

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