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Agile Group Holdings Limited -- Moody's revises Agile's outlook to stable from negative; ratings affirmed

Rating Action: Moody's revises Agile's outlook to stable from negative; ratings affirmedGlobal Credit Research - 29 Mar 2021Hong Kong, March 29, 2021 -- Moody's Investors Service has changed Agile Group Holdings Limited's rating outlook to stable from negative.At the same time, Moody's has affirmed Agile's Ba2 corporate family rating (CFR) and Ba3 senior unsecured rating on its notes."The outlook revision to stable from negative reflects our expectation that Agile's revenue growth and controlled debt increase will help to further improve its key financial metrics over the next 12-18 months," says Kaven Tsang, a Moody's Senior Vice President."The rating affirmation also reflects our view that Agile will maintain financial discipline and good liquidity while pursuing business growth over the next 1-2 years," adds Tsang.RATINGS RATIONALEAgile's Ba2 CFR reflects its (1) strong market position and a solid track record of property development in its core Guangdong and Hainan markets; (2) track record of disciplined financial management; (3) good liquidity, with good access to offshore debt and banking markets; and (4) improving geographic diversification that could temper regional economic and regulatory risks.At the same time, its Ba2 rating incorporates the company's modest financial metrics, and exposure to financial and execution risks associated with its expansion in non-property businesses.Moody's expects Agile's debt leverage, measured by revenue/adjusted debt, to improve further to 70%-75% over the next 1-2 years after increasing to 66.9% in 2020 from 50.5% in 2019. Similarly, its interest coverage, measured by EBIT/interest, will rise to 3.0x-3.5x in the next 1-2 years, following an improvement to 2.8x in 2020 from 2.3x in 2019.These improvement trends meet our expectation for Agile's Ba2 CFR, and reflects Agile's abilities to reduce its leverage through prudent business growth and controlled debt increases.Agile's revenue growth over the next 1-2 years will be supported by a higher delivery of presold property projects, due to solid presales growth over the past 2-3 years, and continued development in non-property businesses.Agile's property presales grew 17% to RMB138.2 billion in 2020 despite the disruption caused by COVID-19 in the first half (1H). This growth provides visibility for the recognition of property development revenues over the next 1-2 years.Moody's expects Agile's solid sales execution, established brand and sizable land banks in Greater Bay Area and Eastern China to support moderate growth in its property presales to RMB145 billion-RMB155 billion annually over the next 1-2 years, amid tightened credit conditions in China.Moody's also expects Agile to maintain financial discipline and keep its investments in new land purchases and non-property development businesses at 25%-30% of its property presales over the next 1-2 years. This will allow the company to keep its debt growth at an annual rate of 5%-10% over the next 1 -2 years.Agile's liquidity position remains good. The company's cash-on-hand of RMB50.9 billion as of 31 December 2020 can cover its short-term debt of RMB38.8 billion as of the same date. Moody's also forecasts its cash holding and operating cash flow to be sufficient to cover its maturing debt, committed land premiums and dividend payments over the next 12-18 months.In terms of environmental, social and governance factors, Moody's has considered Agile's concentrated ownership by its key shareholder, the Chen family, which held a 66.3% stake as of end of December 2020. The family's track record of injecting equity into the company to support its liquidity and refinancing needs partly temper concerns over its concentrated ownership.Agile's CFR has also considered the presence of internal governance structures and disclosure standards, as required under the Corporate Governance Code for companies listed on the Hong Kong Stock Exchange.Agile's Ba3 senior unsecured bond rating is one notch below its CFR because of the risk of structural subordination. This subordination risk reflects the fact that most of Agile's claims are at the 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 likely recovery rate for claims at the holding company will be lower.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSUpward rating pressure could develop if Agile (1) executes its business expansion plan with discipline; (2) maintains a strong liquidity position; and (3) improves its credit metrics, with revenue/adjusted debt above 80%-85% and EBIT/interest coverage trending to 4.5x-5.0x on a sustained basis.Downward rating pressure could develop if (1) Agile's presales decline, (2) the company fails to ramp up its environmental protection business or (3) the expansion strategy in its property or non-property businesses becomes more aggressive such that its debt or contingent liabilities increase, weakening its credit metrics.Indications of downgrade pressure includes EBIT/interest coverage below 3.0x-3.5x or revenue/adjusted debt under 65%-70% on a sustained basis.Any signs of weakening in liquidity with cash/short-term debt consistently below 1.0x or deterioration of corporate governance standards will also pressure the rating.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.Agile Group Holdings Limited (Agile) is one of China's major property developers. As of 31 December 2020, the company had a land bank with a total attributable planned gross floor area (GFA) of 53 million sq.m. in 84 cities, spanning across Southern China region, Eastern China region, Western China region, Central China region, Hainan and Yunnan region, Northeast China region, Northern China region, Hong Kong and overseas. Southern China (mainly Guangdong Province) is Agile's largest market, accounting for 32% of the company's land bank as of 31 December 2020 and 34% of its presales by GFA in 2020.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's 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 provider's 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.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's 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. 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. 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