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.
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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
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
