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Rating Action:

Moody's affirms CR Land's Baa1/Baa2 ratings; outlook stable

17 Feb 2022

Hong Kong, February 17, 2022 -- 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 medium-term note (MTN) program, the Baa1 rating on CR Land's senior unsecured bonds, and the Baa2 rating on its subordinated perpetual securities.

The outlook is stable.

"The rating affirmation reflects CR land's good track record of business growth, disciplined financial management, good liquidity and funding access due to its state-owned background," says Celine Yang, a Moody's Vice President and Senior Analyst.

"The stable outlook reflects our expectation that CR Land will maintain its strong operations in property development and investment, and that the company's credit metrics will remain within the levels appropriate for its rating in the coming 12-18 months. We also expect the company to maintain its close linkage with its parent China Resources (Holdings) Company Limited, and to maintain excellent access to onshore and offshore bank funding," adds Yang.

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 state-owned parent, China Resources (Holdings) Company Limited (CRH).

On the other hand, the rating is constrained by CR Land's moderate credit metrics due to its continued expansion.

Moody's expects CR Land's contracted sales to remain largely flat in 2022. Its sales grew 10.8% year on year in 2021, outperforming the national sales growth of 5.8% during the same year. This is supported by its well-located land bank, with over 68% in tier 1 and tier 2 cities where demand remains resilient compared with lower tier cities.

Moody's also projects CR land's recurring income from its rental business and property management business will increase by around 10%-20% during the same year with the opening of new shopping malls and contribution from newly acquired property management businesses. Its income from rental and property management business increased 41.6% to RMB12.8 billion for the first half (1H) of 2021, compared with RMB9.0 billion in 1H 2020.

Moody's forecasts CR Land's net debt/net capitalization ratio will stay at 35% over the next 12-18 months, compared with 34.3% for the 12 months ended June 2021. The slight increase in leverage reflects CR Land's growth strategy. The company recently acquired two companies for around RMB3.2 billion, which will be integrated with its property management business. Nevertheless, this leverage level is still within Moody's expectation for the company's Baa1 rating level.

CR Land's interest coverage will decline to around 5.7x-6.5x from 7.7x for the 12 months ended June 2021, mainly driven by profit margin compression as a result of increased land cost and property price caps. CR land's weaker EBIT/interest coverage will be mitigated by the increasing recurring income from its rental and property management business that will support its interest servicing ability. Moody's forecasts its recurring income (including income from its rental business [excluding hotel] and property management business) to interest coverage will stay high at around 160%-180% in the coming 12-18 months, versus 180% for the 12 months ended June 2021.

CR Land's liquidity is excellent. Moody's expects CR Land's cash holdings and operating cash flow to fully cover its committed land payments and refinancing needs over the next 12-18 months.

The strong liquidity is underpinned by CR Land's sizable cash holdings, moderate short-term debt maturities and good access to offshore and onshore financing. Its cash/short-term debt coverage remained healthy at 2.25x as of 30 June 2021. Its close linkage with CRH, which owns 59.9% of CR Land, would also support its access to funding.

With respect to environmental, social and governance (ESG) factors, CR Land's Baa1 issuer rating incorporates the company's (1) disciplined financial approach to balancing its business expansion and financial leverage; (2) majority ownership by CRH, which is under the supervision and monitoring of China's central government; (3) disclosure of material related-party transactions as required under the Corporate Governance Code for companies listed on the Hong Kong Exchange; and (4) 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.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Upward rating pressure could emerge if CR Land grows its recurring income, and maintains strong credit metrics, such that its net debt/net capitalization falls below 35% and its EBIT/interest exceeds 7.0x-7.5x, and recurring income/interest coverage remains above 150%, all on a sustained basis.

Moody's would consider downgrading CR Land's rating if the company's sales fall significantly short of our expectations, profit margin declines significantly, liquidity is hurt by rapid expansion or debt leverage increases substantially.

Credit metrics indicative of downward rating pressure include EBIT/interest falling below 5.0x-5.5x, adjusted net debt/net capitalization rising above 40%-45% or recurring income/interest coverage falling below 100%, all on a sustained basis.

Furthermore, a material decline in CRH's stake in CR Land would demonstrate a weakening of 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 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, China Resources Land Limited (CR Land) is a leading property investment and development company in China. As of the end of June 2021, the company had a property development land bank with a gross floor area (GFA) of 59.88 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 12.8 million sqm as of the end of June 2021 and included high-end shopping malls, office buildings and hotels. Its revenue was RMB74 billion for the first six months of 2021.

REGULATORY DISCLOSURES

For 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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

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 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 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The 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 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 www.moodys.com.

Please see 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 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.)
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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