Hong Kong, July 02, 2019 -- Moody's Investors Service has affirmed Gemdale Corporation's Ba2 corporate
family rating (CFR).
Moody's has also affirmed the Ba3 CFR of Famous Commercial Limited,
a wholly-owned subsidiary of Gemdale.
In addition, Moody's has affirmed the Ba3 senior unsecured ratings
on the bonds issued by Gemdale Ever Prosperity Investment Limited and
guaranteed by Famous.
All the outlooks remain stable.
RATINGS RATIONALE
"The affirmation of Gemdale's rating reflects our expectation that
its credit quality will remain broadly stable and within the parameters
of its Ba2 rating over the next one to two years, as higher debt
levels to pursue business growth will be largely offset by increased revenue
and earnings," says Danny Chan, a Moody's Assistant Vice President
and Analyst.
The Ba2 CFR factors in Gemdale's well-managed liquidity,
financial discipline and good access to funding. At the same time,
the rating factors in Moody's expectation that Gemdale will grow its business
through joint venture (JV) projects, thereby raising contingent
liabilities and lowering transparency.
Moody's expects the company's revenue to debt ratio -- adjusted
for its share in joint ventures -- to slightly improve to 75%-80%
over the next 1-2 years from an estimated 74% in 2018,
supported by increased revenue recognition following strong contracted
sales over the past two years.
However, JV-adjusted EBIT/interest coverage will fall to
around 5.0x in the next 1-2 years from an estimated 6.2x
in 2018, due to an increased level of debt and rising finance costs.
These JV-adjusted financial metrics still support its Ba2 CFR.
Gemdale's liquidity is good, supported by its strong contracted
sales and solid access to funding. As of March 2019, the
company's cash of RMB41 billion could cover about 1.8x its short-term
debt as of the same date.
The stable outlook on Gemdale's CRF reflects Moody's expectation
that the company will continue to demonstrate financial discipline in
managing its business growth. Moody's also expects the company
to maintain adequate liquidity to meet its working capital and refinancing
needs.
Upward rating pressure could emerge if Gemdale: (1) successfully
implements its business plan to achieve stable sales; (2) improves
its profit margins; and (3) manages down its debt leverage.
Credit metrics that Moody's would consider for an upgrade of Gemdale's
rating include revenue/adjusted debt exceeding 90% and EBIT coverage
of interest in excess of 4.25x, both on a sustained basis.
Gemdale's Ba2 rating could come under downward pressure if: (1)
contracted sales and/or operating cash flows become weaker than Moody's
currently expects; or (2) it materially accelerates its development
activities and/or undertakes aggressive land acquisitions, thereby
weakening its liquidity position.
The rating could also be downgraded if EBIT coverage of interest falls
below 3.0x-3.5x or revenue/debt drops below 75%,
both on a sustained basis.
Famous' Ba3 CFR continues to reflect its b2-level standalone credit
profile and a two-notch rating uplift, based on Moody's expectation
that Gemdale will provide financial and operational support to Famous,
in times of stress.
Moody's support assumption considers (1) Gemdale's full ownership
of Famous; (2) Famous' status as the primary platform for Gemdale
to raise funds from the offshore bank and debt capital markets; and
(3) Gemdale's track record of providing financial support to Famous.
Famous' standalone credit profile is constrained by the small scale of
its operations, its weak financial metrics and potential volatility
in its sales performance. The standalone credit profile also factors
in the operational benefits arising from the company's status as a subsidiary
of Gemdale, such as cost efficiencies and a strong brand name,
and Moody's expectation of an increase in scale over the next 1-2
years as Gemdale injects assets into Famous.
The stable outlook on Famous reflects Moody's expectation that (1) the
company's standalone credit profile will remain largely stable; and
(2) the likelihood of support from Gemdale will remain intact over the
next 12-18 months.
Famous' rating could be upgraded if: (1) it improves its scale
and diversity and thereby reduces sales and earnings volatility;
and (2) Gemdale's CFR is upgraded.
On the other hand, Famous' rating could come under downward pressure
if (1) Gemdale's rating is downgraded; or (2) there is a reduction
in the ownership of or weakening in the support from Gemdale.
Moody's could also downgrade Famous' rating if the company's credit
profile or liquidity deteriorate materially because of a failure to implement
its business plan or pursue aggressive expansion.
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.
Incorporated in China and listed on the Shanghai Stock Exchange,
Gemdale Corporation is a leading developer in China's residential property
sector. At the end of December 2018, the company's land bank
totaled around 44 million square meters (sqm) in saleable gross floor
area (GFA) in over 50 cities in China.
Incorporated in Hong Kong in 1995, Famous Commercial Limited is
a wholly owned subsidiary of Gemdale Corporation. The company also
serves as a funding vehicle in overseas markets.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
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.
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.
Danny Chan
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
