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Rating Action:

Moody's affirms China Vanke's Baa1 issuer rating; outlook stable

 The document has been translated in other languages

01 Apr 2021

Hong Kong, April 01, 2021 -- Moody's Investors Service has affirmed the following ratings of China Vanke Co., Ltd. and its subsidiary:

1. Baa1 issuer rating of China Vanke;

2. (P)Baa2 backed senior unsecured rating on the medium-term note (MTN) program of Vanke Real Estate (Hong Kong) Company Limited; and

3. Baa2 backed senior unsecured rating on the bonds issued by Vanke Real Estate (Hong Kong) Company Limited.

All outlooks remain stable.

Vanke Real Estate is 100% owned by China Vanke Co., Ltd. The MTN program and the senior unsecured bonds are supported by a deed of equity interest purchase undertaking and a keepwell deed between China Vanke, Vanke Real Estate, and the bond trustee.

"The rating affirmation reflects our expectation that China Vanke will maintain a strong performance in contracted sales and disciplined financial management, sustaining its low net debt leverage and solid credit metrics over the next 12-18 months," says Kaven Tsang, a Moody's Senior Vice President.

RATINGS RATIONALE

China Vanke's Baa1 issuer rating reflects the company's strong track record in property sales execution and its position as a leading property developer in China (A1 stable) in terms of scale and brand. China Vanke's large-scale operations and nationwide coverage also mitigate the volatility in the property market.

The Baa1 rating further considers China Vanke's financial discipline, with solid financial metrics and strong liquidity through the cycles.

However, the rating also reflects the company's exposure to the property industry's cyclicality and regulatory risks, and ongoing funding needs from its light land-bank strategy and expansion beyond residential development.

China Vanke's contracted sales grew 11.6% year on year to RMB704 billion in 2020 despite the coronavirus outbreak, positioning the company among the top-three property developers, in terms of contracted sales, in China.

Moody's expects the company's contracted sales to increase around 5% to around RMB740 billion in 2021, given its strong execution track record, well-established brand and good quality land bank. China Vanke's solid contracted sales will support its future revenue recognition and liquidity.

Moody's expects the company's revenue/adjusted debt to stay strong at around 130% over the next 1-2 years, versus 133% for 2020, given its revenue and debt will grow in tandem. Its adjusted net debt/net capitalization ratio will also remain healthy at around 25% over the next 1-2 years, versus 25.4% as of December 2020.

However, its EBIT/interest will decline slightly to 6.0x-6.5x over the next 1-2 years from 6.6x in 2020, because a likely decrease in the profit margin will offset the effect of the revenue increase.

All these ratios continue to support China Vanke's Baa1 issuer rating.

Vanke Real Estate's Baa2 senior unsecured rating for the notes incorporates its standalone credit strength and a three-notch rating uplift from China Vanke, reflecting Moody's expectation that China Vanke will provide financial support to Vanke Real Estate in times of need.

Vanke Real Estate's standalone credit profile reflects its mid-size operations in China (A1 stable), and the operational and financial benefits arising from the close links with its parent China Vanke. These links include the parent's brand, execution and management expertise, highly diversified sales network, and good access to funding.

The support assessment is based on: (1) China Vanke's full ownership of and operational support for Vanke Real Estate, with the latter forming a highly integral part of the company; (2) Vanke Real Estate's role as the group's core platform for raising offshore funding to support projects in the group's home markets; and (3) China Vanke's track record of directly funding Vanke Real Estate's projects.

The Baa2 senior unsecured rating is unaffected by subordination to claims at the operating company level, because Moody's expects that support from the parent will flow through the holding company.

With respect to environmental, social and governance (ESG) factors, China Vanke's Baa1 issuer rating has taken into account the company's (1) disciplined financial management, as reflected by its low balance-sheet leverage; (2) good operating track record; (3) low risk of concentrated ownership, as no shareholders holds more than 30% in the company, and the largest shareholder does not get involved in the company's daily operations; (4) its disclosure of material related-party transactions as required by the Hong Kong and Shenzhen stock exchanges; and (5) the presence of a board of directors and three special committees to supervise the company's operations.

China Vanke's liquidity is strong, underpinned by its RMB195.2 billion in cash holdings as of December 2020. Its cash/short-term debt coverage remains healthy at 2.3x as of the same date. Moody's expects China Vanke's cash holding and operating cash flow to fully cover its committed land payments and refinancing needs over the next 12-18 months.

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

China Vanke's stable outlook reflects Moody's expectation that the company will maintain its financial discipline and healthy credit metrics over the next 12-18 months as it continues its business expansion plan.

Moody's could upgrade China Vanke's issuer rating if the company (1) records strong recurring income, which can be a buffer against the volatility associated with its property development business; and (2) strengthens its credit metrics, with its adjusted net debt/net capitalization below 20%-25% and EBIT/interest above 7.5x-8.0x on a sustained basis.

On the other hand, Moody's could downgrade the issuer rating if the company's performance or financial position is significantly and adversely affected by (1) regulatory changes, (2) aggressive debt-funded expansion or (3) severe down-market conditions. Credit metrics indicating such deterioration will include its adjusted net debt/net capitalization exceeding 35%, revenue/adjusted debt falling below 115%-120% and EBIT/interest decreasing below 6.0x-6.5x on a sustained basis.

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.

China Vanke Co., Ltd. was founded in 1984 and started its real estate operations in 1988. It is one of the largest property developers in China by contracted sales. As of 31 December 2020, it had an attributable land bank of 95.1 million square meters in gross floor area across China's four major economic regions of Shanghai, northern China, southern China, and the central and western China. The company listed on the Shenzhen Stock Exchange in 1991 and on the Hong Kong Stock Exchange (HKSE) in 2014.

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 entities are participating and the rated entities or their agent(s) generally provide 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

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.

Kaven Tsang
Senior Vice President
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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