Fitch rates Hydoo notes B-

Fitch Ratings said it assigned Hydoo International Holding Ltd.’s proposed senior unsecured notes a rating of B- with a recovery rating of RR4. The notes are being offered in exchange for its $157 million notes due May 2020 and as new offering. Hydoo plans to use the proceeds primarily for refinancing debt. Hydoo’s notes are rated at the same level as its senior unsecured rating because they constitute its direct, unsubordinated and senior unsecured obligations under a guarantee.

“Hydoo’s ratings are supported by its sustained low leverage on controlled construction and land acquisitions, but are constrained by its weak business profile due to its small business scale, low non-development income and sluggish trade-center demand in China’s tier 3 and 4 cities. The increasing proportion of residential property sales may mitigate its weak business profile,” said Fitch in a press release.

Hydoo has kept leverage, measured by net debt/adjusted inventory, under 25% since 2015. Fitch expects Hydoo’s leverage to remain below 30%, assuming disciplined capex plans for 2019-2020. Leverage was 17.6% at end-June 2019 (16% at end-2018) as the company slowed its pace of land acquisitions, Fitch said.

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