HONG KONG, 9 October 2019. Pengyuan International has assigned issuance credit rating of ‘BB’ to Ronshine China Holdings Limited (Ronshine)’s proposed USD-denominated senior unsecured notes. The notes we rate are the additional notes which will be consolidated and form a single series with the USD200 million senior notes issued on April 25, 2019 and the USD235 million senior notes issued on June 13, 2019.


The issuance credit rating is equalised to the Company’s issuer credit rating. The notes are senior obligations of the Company, guaranteed by certain of its existing subsidiaries, and rank at least pari passu in right of payment with all other unsecured, unsubordinated indebtedness of the Company. The Company intends to use the proceeds to refinance certain of its existing indebtedness. The issuance rating is provisional and subject to our review of final offering documents.


Ronshine is a Chinese property developer that primarily engaged in the development of mid to high-end residential properties. In 2018, property development contributed 97% of total revenue and the construction services, rental income and others contributed the rest.


ISSUANCE RATING RATIONALES

We equalized the issuance rating of Ronshine’s proposed USD-denominated senior unsecured notes to the Company’s issuer credit rating without any notching. The notes will be issued by the parent holding company, Ronshine China Holdings Limited.


Ronshine had a priority liability ratio of 79% and priority debt ratio of 27% at the end of 2018, by our estimates, which are relatively high. We believe the reason behind a higher priority liability ratio is that the contract liabilities, which is the large component of the consolidated liabilities, are held at the project subsidiaries for most Chinese property developers. 


A high priority liability ratio indicates the potential structural subordination risk for parent holding company’s creditors. However, we think such risks will be partially mitigated by the factors such as operating assets held at parent company, subsidiary guarantees, and diversified operating entities. We believe these mitigating factors are effective and will improve the recovery prospects for parent company’s creditors.


Ronshine had some operating assets at its parent company, including RMB7,680 million of due from subsidiaries, RMB637 million of investments in subsidiaries and RMB31 million cash at the end of 2018, which will provide the first layer of protections for parent company’s creditors and allow creditors to claim these assets in the event of defaults, in our opinion. 


In addition, the proposed notes will be also guaranteed by the subsidiary guarantors and the JV subsidiary guarantors. The notes rank at least pari passu in right of payment with all other unsecured, unsubordinated indebtedness of such subsidiary guarantor. We believe such guarantees provided by the subsidiaries are second layer of protections for the parent company’s creditors. 


Last but not least, Ronshine’s has a very diversified operating structure with subsidiaries established across various cities in China, and each of the subsidiaries is a standalone legal entity with its own net asset value. We believe the likelihood of simultaneous failure of all these operating entities, in the event of distress, is fairly slim, therefore it will enable the parent company’s creditors to claim residual value of the healthy subsidiaries if needed.

 

ANALYSTS CONTACTMEDIA CONTACTOTHER ENQUIRIES

Primary Analyst

Winnie Guo

+852 3615 8344

winnie.guo@pyrating.com

 

Secondary Analyst

Simon Lee

+852 3615 8307

simon.lee@pyrating.com

 

Committee Chair

Tony Tang

+852 3615 8278

tony.tang@pyrating.com

media@pyrating.comcontact@pyrating.com



Date of Relevant Rating Committee: 24 September 2019

Additional information is available on www.pyrating.com

 

Related Criteria

General Corporate Rating Criteria (15 March 2019)

Industry Credit Guidelines Chinese Homebuilders and Property Developers (31 August 2019)

Corporate Financial Adjustments and Ratio Definitions (7 May 2019)



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