Hong Kong, September 23, 2021 -- Moody's Investors Service has changed the rating outlooks of the following
companies to negative from stable:
• Greenland Holding Group Company Limited,
• Greenland Global Investment Limited, and
• Greenland Hong Kong Holdings Limited.
At the same time, Moody's has affirmed the following ratings:
• The Ba1 corporate family rating (CFR) on Greenland Holding;
• The (P)Ba2 backed senior unsecured rating on Greenland Global's
medium-term note (MTN) program, with the notes unconditionally
and irrevocably guaranteed by Greenland Holding;
• The Ba2 backed senior unsecured ratings on Greenland Global's senior
unsecured notes, which are unconditionally and irrevocably guaranteed
by Greenland Holding;
• The Ba2 CFR on Greenland Hong Kong;
• The (P)Ba3 backed senior unsecured rating on Greenland Hong Kong's
MTN program; and
• The Ba3 backed senior unsecured rating on Greenland Hong Kong's
USD notes.
The MTN program of Greenland Hong Kong and the related notes are supported
by a deed of equity interest purchase undertaking and a keepwell deed
between Greenland Holding, Greenland Hong Kong and the bond trustee.
"The negative outlook reflects our expectation that China's softening
property and construction markets, as well as tight onshore funding
and volatile offshore debt capital markets, would weaken Greenland
Holding's credit quality and ability to raise new debt to meet its
operational and refinancing needs over the next 12-18 months,"
says Kaven Tsang, a Moody's Senior Vice President.
"However, the rating affirmation reflects our expectation
that Greenland Holding will have sufficient liquidity to address its refinancing
needs, maintain largely stable property sales and continue to deleverage
over the next 12-18 months," adds Tsang.
RATINGS RATIONALE
Greenland Holding's Ba1 CFR continues to reflect the company's
large scale, good geographic and product diversification in China;
and good access to onshore bank funds, given its close linkage with
the Shanghai government.
The Ba1 CFR rating is constrained by the company's increased exposure
to the construction sector, which drags the company's overall
profitability, its high refinancing needs and weakened access to
debt capital market both onshore and offshore. Moody's believes
Greenland Holding will face uncertainty in issuing new offshore bonds
at reasonable funding costs to refinance its maturing debt over the next
6-12 months.
Moody's expects Greenland Holding to have sufficient internal resources
to repay a total amount of USD2.87 billion of US dollar bonds maturing
between September 2021 and December 2022. However, the repayment
will reduce the funding available for its operations over the next 12-18
months. The company's financial flexibility will also be affected
if weakness in the offshore debt capital markets persists.
Moody's expects Greenland Holding's financial metrics to remain
modest in the next 12-18 months, as China's softening
property development and construction markets will restrain the company's
cash flow and EBITDA generation. This is despite Greenland Holding's
focus on deleveraging, cutting its reported debt to RMB289 billion
as of June 2021 from RMB323 billion as of December 2020. Moody's
forecasts the company's adjusted debt/capitalization, adjusted
debt/EBITDA and EBIT/interest coverage will stay at around 58%-62%,
4.7x-4.9x and 3.0x-3.3x,
respectively, over the next 12-18 months, versus 64%,
4.9x and 3.2x, respectively, for the 12 months
ended June 2021. These credit metrics are weak for its Ba1 CFR.
There has been no material development on Shanghai State-owned
Assets Supervision and Administration Commission's (SASAC) plan
to divest part of its indirect ownership in Greenland Holding.
Nevertheless, Moody's expects Shanghai SASAC to exercise prudence
when reducing its ownership to avoid triggering the change of control
clause present in its offshore USD, which requires Shanghai SASAC
to maintain control over the company. Any deviation from such expectation
would warrant a reassessment of the Ba1 CFR.
The Ba2 backed senior unsecured rating on Greenland Holding's guaranteed
bonds is one notch lower than it would otherwise be because of the risk
of structural subordination. This risk reflects the fact that most
of the claims are at the operating subsidiaries and have priority over
claims at the holding company in a bankruptcy scenario. In addition,
the holding company lacks significant mitigating factors for structural
subordination. As a result of these factors, the expected
recovery rate for claims at the holding company will be lower.
Greenland Hong Kong's Ba2 CFR reflects its standalone credit profile
and a one-notch rating uplift based on Moody's assessment
of the likely strong financial support from its parent, Greenland
Holding, if necessary.
Greenland Hong Kong's standalone credit profile reflects its healthy credit
metrics, well-located land banks, and good liquidity
and access to bank funding, given its status as a key subsidiary
of Greenland Holding.
Its standalone credit profile also takes into consideration its moderate
operating scale and the execution risks associated with its fast growth
plan.
Greenland Hong Kong's negative rating outlook reflects Greenland
Holding's weakened ability to extend support to Greenland Hong Kong,
if needed.
Greenland Hong Kong's Ba3 backed senior unsecured rating is one
notch lower than it would otherwise be because of the risk of structural
subordination. This reflects the fact that most of the claims are
at the operating subsidiaries' level and have priority over claims at
the holding company (Greenland Hong Kong) in a bankruptcy scenario;
and Moody's view that this rating, in the absence of a parental
guarantee, should be lower than the Ba2 rating of the senior unsecured
notes directly guaranteed by Greenland Holding.
With respect to environmental, social and governance (ESG) factors,
Greenland Holding's Ba1 CFR takes into account its state-owned
enterprise (SOE) background; its disclosure of significant related-party
transactions, as its parent company, Greenland Holdings Corporation
Limited, is required by the relevant codes for companies listed
on the Shanghai Stock Exchange; and the presence of a diversified
board of directors, with four independent non-executive directors,
and four special committees to supervise the company's operations.
Greenland Hong Kong's Ba2 CFR factors in the substantial state ownership
in its largest shareholder, Greenland Holding, and the company's
history of related-party transactions with Greenland Holding,
such as the provision of shareholder loans and payables, and asset
sales. The company is also listed on the Hong Kong Stock Exchange
and follows the Listing Rules of the Hong Kong Stock Exchange and the
Securities and Futures Ordinance in Hong Kong SAR, China in governing
related-party transactions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Greenland Holding's ratings are unlikely to be upgraded given the
negative rating outlook. However, the outlook could be revised
to stable if the company sustains stable property sales and construction
revenues; maintains prudent practices in its land acquisitions and
financial management; and deleverages and improves its credit metrics,
such that its adjusted debt/capitalization falls under 55%-60%,
adjusted debt/EBITDA falls below 4.5x and EBIT/interest rises above
3.5x on a sustained basis.
On the other hand, Greenland Holding will face downward rating pressure
if the company experiences a material decline in property sales or construction
revenues, or a material delay in the collection of proceeds from
property sales or construction receivables; a substantial decline
in its profit margin; a sizable increase in debt, arising from
aggressive expansion or land acquisitions; or an increase in the
risk profile of its non-property businesses.
Moody's would also consider downgrading Greenland Holding's
ratings if the company records weakened credit metrics, with adjusted
debt/capitalization rising above 60%, adjusted debt/EBITDA
increasing above 5x, and EBIT/interest dropping below 2.5x-3.0x
on a sustained basis.
A deterioration in its access to funding resulting from a significant
reduction in Shanghai SASAC's ownership of Greenland Holding or other
shareholders taking over the control of the company from Shanghai SASAC
would also be negative for the ratings.
Greenland Hong Kong's ratings are also unlikely to be upgraded given
its negative rating outlook. However, the outlook could be
revised to stable if Greenland Holding's rating outlook is revised
to stable. Positive rating momentum could also occur if Greenland
Hong Kong's standalone credit profile significantly strengthens,
indicated by a material improvement in its scale and diversification with
solid credit metrics, such as debt leverage — measured as
revenue/adjusted debt — staying above 85%-90%
and EBIT/interest above 3.5x-4.0x on a consistent
basis.
On the other hand, Greenland Hong Kong's ratings could be downgraded
if Greenland Holding is downgraded; the company fails to generate
operating cash flow to maintain its liquidity buffer; fails to maintain
contracted sales and revenue growth; or significantly accelerates
development, and executes an aggressive land acquisition plan or
acquisitions, such that its debt leverage — measured as revenue/adjusted
debt — falls below 65%-70% and its EBIT/interest
drops below 2.5x-3.0x on a sustained basis.
Any evidence of a reduction in ownership or weakening in support from
Greenland Holding will also pressure Greenland Hong Kong's ratings.
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.
Headquartered in Shanghai, Greenland Holding Group Company Limited
is a state-controlled enterprise that primarily focuses on the
real estate sector, with businesses in construction, finance
and auto dealerships as well. Shanghai SASAC indirectly owns 46.37%
of Greenland Holding as of June 2021.
Greenland Hong Kong Holdings Limited is principally engaged in the development
of large-scale, high-quality residential communities,
city center integrated projects, and travel and leisure projects
that target the middle- to high-end customer segment.
Greenland Holding owned 59.11% of Greenland Hong Kong as
of 30 June 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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60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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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.
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
