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Rating Action:

Moody's affirms CR Land's Baa1 ratings and assigns Baa2 subordinated rating to its proposed perpetual securities ; outlook stable

 The document has been translated in other languages

02 Dec 2019

Hong Kong, December 02, 2019 -- Moody's Investors Service has affirmed China Resources Land Limited's (CR Land) Baa1 issuer rating, the (P)Baa1 senior unsecured rating on CR Land's MTN program, and the Baa1 senior unsecured rating on CR Land's bonds.

At the same time, Moody's has assigned a Baa2 subordinated rating to the proposed subordinated perpetual securities to be issued by CR Land.

The company will use the proceeds of the proposed issuance to refinance its medium-term to long-term offshore debt that will come due within one year.

The outlook is stable.

RATINGS RATIONALE

"CR Land's Baa1 issuer rating reflects the company's sustainable business model, which is supported by its (1) national coverage and quality land bank focused on high-tier cities; (2) growing recurring income from its sizable investment property portfolio; and (3) strong funding access and operational synergies with its parent, China Resources (Holdings) Company Limited (CRH)," says Celine Yang, a Moody's Assistant Vice President and Analyst.

"Although CR Land's growth plan for both its residential development business and investment portfolio will weaken its credit metrics over the next one to two years, we expect the company will maintain its disciplined financial management and keep its key credit metrics within the parameters for its Baa1 rating," adds Yang.

Specifically, Moody's forecasts CR Land's net debt/net capitalization ratio to stay high at 35%-36% over the next 12-18 months, compared with the 35.3% for the 12 months ended June 2019. Its interest coverage will also come down slightly further to around 6.0x from 6.3x for the 12 months ended June 2019 and 7.7x in 2018. These projected metrics are still within Moody's expectation for the company's Baa1 rating level.

With respect to environmental, social and governance (ESG) factors, CR Land's Baa1 issuer rating has taken into account the company's (1) disciplined financial approach to balancing its business expansion and financial leverage; (2) good track record in operations and execution; (3) majority ownership by China Resources (Holdings) Company Limited (CRH), which is under the supervision and monitoring of China's central government; (4) disclosure of material related-party transactions as required under the Corporate Governance Code for companies listed on the Hong Kong Exchange; and (5) diversified board of directors and six special committees to supervise operations. The company has a stable dividend policy, as reflected by its dividend payout of around 25%-35% of its net profit over the past three years.

CR Land's liquidity is excellent, underpinned by its sizable cash holdings, moderate short-term debt maturities and good access to both offshore and onshore financing. Its cash/short-term debt coverage remained healthy at 4.1x at 30 June 2019. Moody's expects CR Land's cash holdings and operating cash flow can fully cover its committed land payments and refinancing needs over the next 12-18 months.

The Baa2 subordinated rating of the proposed perpetual securities is one notch lower than CR Land's Baa1 issuer and senior unsecured ratings to reflect the subordinated status of the securities.

Moody's considers CR Land's proposed perpetual securities as 100% debt-like securities due to the high 300 bps coupon step-up at year five, which provides the company with a strong incentive to prepay the bonds.

Moody's also assesses the likelihood of CR Land deferring the coupon payment as low, given the company's sound financial position and the dividend stopper condition.

However, the rating on the subordinated perpetual securities could be lowered if the company raises further debt with deferral features and subordinated status, such that it becomes a substantial portion of the capital structure, or if Moody's assesses that the company is likely to defer a large number of coupon payments in advance of default.

The stable outlook reflects Moody's expectation that (1) CR Land will maintain its property development and investment model, and (2) CR Land's debt leverage will stay within levels appropriate for its rating.

Moody's also expects the company will continue to receive operational support from its parent, CRH, and will maintain excellent access to both onshore and offshore bank funding.

CR Land's issuer rating could be upgraded over the medium term if the company (1) grows its investment property portfolio to substantially fund its development business; or (2) maintains strong credit metrics, such that its net debt/net capitalization stays below 30%-32% and its EBIT/interest exceeds 8.5x-9.0x.

On the other hand, Moody's could downgrade CR Land's rating if the company's (1) sales fall significantly short of Moody's expectations, (2) profit margin declines materially, (3) liquidity position is adversely affected by rapid expansion, or (4) debt leverage increases materially.

Credit metrics that indicate downgrade pressure include EBIT/interest falling below 5x-6x and adjusted net debt/net capitalization remaining consistently above 40%.

Furthermore, a decline in CRH's stake in CR Land to below 50% from its current 59.55% would demonstrate a weakening in the two companies' relationship, thereby straining CR Land's rating.

The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Founded in 1996, China Resources Land Limited (CR Land) is a leading property investment and development company in China. At the end of June 2019, the company had a land bank with a gross floor area (GFA) of 67.4 million square meters (sqm), with projects diversified across 75 cities, including Beijing, Shanghai, Shenzhen, Tianjin, Chengdu and Chongqing.

CR Land's investment properties in operation had a total GFA of 9.5 million sqm at the end of June 2019 and included high-end shopping malls, office buildings and hotels. Its revenue was RMB121 billion ($18 billion) in 2018.

REGULATORY DISCLOSURES

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.

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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
Asst Vice President - 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.)
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

No Related Data.
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