RiseSun Real Estate Development Co., Ltd. — Moody’s downgrades RiseSun’s ratings to Caa2/Caa3; outlook remains negative

Rating Action: Moody’s downgrades RiseSun’s ratings to Caa2/Caa3; outlook remains negativeGlobal Credit Research – 20 Dec 2021Hong Kong, December 20, 2021 — Moody’s Investors Service has downgraded the corporate family rating (CFR) of RiseSun Real Estate Development Co., Ltd. to Caa2 from B3. At the same time, Moody’s has downgraded to Caa3 from Caa1 the backed senior unsecured rating on the bonds issued by RongXingDa Development (BVI) Limited and unconditionally and irrevocably guaranteed by RiseSun.The outlook on all ratings remains negative.”The rating downgrades reflect RiseSun’s heightened liquidity risk, following its proposed exchange offer and consent solicitation to its noteholders,” says Kelly Chen, a Moody’s Assistant Vice President and Analyst.”The negative outlook reflects the uncertainty over the company’s ability to address all its near-term debt maturities amid challenging funding conditions,” adds Chen.RATINGS RATIONALEOn 16 December 2021, RiseSun announced an exchange offer and consent solicitation to its bondholders for the two USD senior notes due in January and April 2022 with a total principal amount of USD780 million.The proposal indicates RiseSun’s weak liquidity to address its maturing debt following the decline in its reported cash balance to RMB24.8 billion as of the end of September 2021, from RMB29.2 billion as of the end of June 2021. In addition, it remains uncertain if RiseSun could mobilize all of such cash resources for debt repayment.Moody’s expects RiseSun’s contracted sales to decline over the next 6-12 months, driven by weaker homebuyers’ confidence and tight funding conditions. This will in turn reduce its operating cash flow for debt repayment.RiseSun’s Caa2 CFR reflects the company’s weak liquidity with high refinancing needs over the next 12-18 months, and Moody’s expectation that the company will face difficulties in raising new funds from onshore and offshore channels to address its refinancing needs amid tight funding conditions.RongXingDa’s Caa3 senior unsecured bond rating is one notch lower than RiseSun’s Caa2 CFR because of the risk of structural subordination. This risk reflects the fact that most of the claims are at the operating subsidiary level and have priority over claims at the holding company level in a bankruptcy scenario. In addition, the holding company lacks significant mitigating factors for structural subordination. As a result, the expected recovery rate for claims at the holding company will be lower.With respect to environmental, social and governance (ESG) factors, RiseSun’s Caa2 CFR considers the company’s concentrated ownership, with its chairman, Geng Jianming, and his family and friends holding a 63.38% stake as of 1 December 2021. Moody’s has also considered the presence of four special committees — the Audit Committee, Remuneration Committee, Nomination Committee and Strategic Committee — to oversee the company’s management and operations, as well as the company’s disclosure of significant related-party transactions as required by the Corporate Governance Code for companies listed on the Shenzhen Stock Exchange.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSAn upgrade is unlikely given the negative outlook.However, the outlook could return to stable if RiseSun improves its funding access and materially reduces its refinancing risks.On the other hand, Moody’s could downgrade the ratings if the company’s liquidity and refinancing risks heighten, or if the recovery prospects for its creditors deteriorate.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.Founded in 1996, RiseSun Real Estate Development Co., Ltd. (RiseSun) engages in real estate and industrial park development, property management services and hotel operations in China. The company was listed on the Shenzhen Stock Exchange in 2007 and is headquartered in Langfang, Hebei province. As of the end of June 2021, it had more than 300 property development projects with an aggregate gross floor area of 37.4 million square meters.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. 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