Rating Action: Moody’s downgrades DaFa to Caa2/Caa3, changes outlook to negativeGlobal Credit Research – 10 Jan 2022Hong Kong, January 10, 2022 — Moody’s Investors Service has downgraded the corporate family rating (CFR) of DaFa Properties Group Limited to Caa2 from B2 and its senior unsecured rating to Caa3 from B3.At the same time, Moody’s has changed its outlook on DaFa’s ratings to negative from stable.”The downgrade reflects the company’s increased liquidity risk, because of its weakened cash buffer, large near-term debt maturity and constrained access to funding,” says Celine Yang, a Moody’s Vice President and Senior Analyst.The rating downgrade follows DaFa’s proposed consent solicitation and tender offer to its noteholders.”The negative outlook reflects uncertainty over the company’s ability to repay all of its debt that will mature or become puttable over the coming 6-12 months,” adds Yang.RATINGS RATIONALEOn 6 January 2022, DaFa announced a consent solicitation and offer to exchange its USD184.5 million bond maturing on 18 January 2022, with a proposed new note maturing on 30 June 2022. It further announced on 7 January 2022 a consent solicitation to amend certain terms of two of its bonds maturing in July 2022 and April 2023. The proposed consent solicitation and exchange offer indicate DaFa’s tight liquidity, which heightens its refinancing risk.Moody’s expects DaFa will not be able to mobilize all of its cash holdings to repay its maturing debts. In addition, DaFa’s exposure to its joint ventures is significant, which could limit its ability to control its cash flow.Moody’s expects DaFa’s contracted sales to weaken over the next 6-12 months, driven by weaker homebuyers’ confidence and tight funding conditions. This will, in turn, reduce the company’s operating cash flow for debt repayment.DaFa’s Caa3 senior unsecured debt rating is one notch lower than its CFR because of structural subordination risk. This risk reflects the fact that most of DaFa’s claims are at its operating subsidiaries and have priority over its senior unsecured 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.With respect to environmental, social and governance (ESG) factors, Moody’s has taken into account the concentrated ownership by DaFa’s key shareholder, Ge Hekai, and his family, who together held a total 72.5% stake in the company as of the end of June 2021.Moody’s has also considered (1) the presence of three independent nonexecutive directors on the board, who chair the audit and remuneration committees; (2) the company’s moderate 20%-25% dividend payout ratio over the past three years; and (3) the presence of other internal governance structures and standards as required under the Corporate Governance Code for companies listed on the Hong Kong Exchange.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody’s could downgrade DaFa’s rating if the company’s liquidity weakens further or it defaults on its debt. An upgrade of the ratings is unlikely, given the negative outlook. However,the ratings could return to stable if DaFa materially improves its liquidity and funding access, and materially reduces its refinancing risks.The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018 and available at https://ift.tt/3aBM2zD. Alternatively, please see the Rating Methodologies page on http://www.moodys.com for a copy of this methodology.DaFa Properties Group Limited is a Shanghai-based residential property developer. As of 30 June 2021, the company had developed 86 property development projects, with a gross floor area of 6.7 million square meters. Its key operating cities include Wenzhou, Huzhou, Hefei, and Ningbo.As of the end of June 2021, DaFa Properties was 72.5% owned by its founder, Mr. Ge Hekai, and his family.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://ift.tt/3r4KzHE 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. 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For further information please see the ratings tab on the issuer/entity page for the respective issuer on http://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 http://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 http://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://ift.tt/31UrDnX 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 http://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 http://www.moodys.com.Please see http://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 http://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. YuYing (Celine) Yang Vice President – Senior Analyst 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.) 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