Fitch Ratings has downgraded the Long-Term Foreign-Currency Issuer Default Ratings (IDR) on China-based property developer Hong Yang Group Company Limited and its subsidiary Redsun Properties Group Limited to 'C' from 'CC', and downgraded their senior unsecured ratings to 'C' from 'CC', with the Recovery Rating remaining at 'RR4'.

Fitch has subsequently withdrawn all the ratings.

The downgrades follow Redsun's announcement on 11 August 2022 that it failed to pay interest on its USD350 million notes due 2025. The 30-day grace period for the payment expires on 12August. The downgrade of parent Hong Yang's IDR reflects the existence of a cross-default clause with Redsun in the indenture for its US dollar bonds.

Redsun and Hong Yang have not provided further information to Fitch beyond their public announcements.

Fitch is withdrawing the ratings as Hong Yang and Redsun have chosen to stop participating in the rating process. Therefore, Fitch will no longer have sufficient information to maintain the ratings. Accordingly, Fitch will no longer provide ratings or analytical coverage for Hong Yang and Redsun.

Key Rating Drivers

Non-Payment of Bond Interest: Redsun said on 11 August that it did not make the interest payment due on its 2025 notes and it does not expect to repay the interest by the expiry of the grace period on 12 August. The missed payment does not yet constitute an event of default due to the grace period, but Fitch believes a default-like process has begun.

Cross Default with Hong Yang's Bond: Fitch believe Redsun's non-payment of the interest upon expiry of the grace period will trigger an event of default for Hong Yang's US dollar bonds, which were issued by Hong Seng Limited and guaranteed by Hong Yang. This is because there is a cross-default clause in the bond indenture.

Uncertainties over Restructuring Plan: Redsun and Hong Yang have appointed financial advisors and legal advisors to communicate with offshore bondholders, according to the announcement on 11 August. There is limited information on the companies' restructuring plan at this stage.

RATING SENSITIVITIES

No longer relevant, as the ratings have been withdrawn.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Issuer Profile

Hong Yang owns 72% of Hong Kong-listed Redsun. Hong Yang group has a property management services company Redsun Services, which was separately listed in Hong Kong in July 2020, as well as a large retail and wholesale centre for home decoration material and furniture in Nanjing, Jiangsu province. Redsun develops residential properties mainly in Jiangsu province. It also operates retail malls, offices and hotels.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

Following the withdrawal of ratings for Hong Yang and Redsun, Fitch will no longer be providing the associated ESG Relevance Scores.

RATING ACTIONS

Entity / Debt

Rating

Recovery

Prior

Redsun Properties Group Limited

LT IDR

WD

Withdrawn

C

LT IDR

C

Downgrade

CC

senior unsecured

LT

WD

Withdrawn

C

senior unsecured

LT

C

Downgrade

RR4

CC

Hong Seng Limited

senior unsecured

LT

WD

Withdrawn

C

senior unsecured

LT

C

Downgrade

RR4

CC

Hong Yang Group Company Limited

LT IDR

WD

Withdrawn

C

LT IDR

C

Downgrade

CC

senior unsecured

LT

WD

Withdrawn

C

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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