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Rating Action:

Moody's affirms Greenland Hong Kong's ratings; outlook stable

25 Sep 2019

Hong Kong, September 25, 2019 -- Moody's Investors Service has affirmed Greenland Hong Kong Holdings Limited's Ba2 corporate family rating (CFR), the (P)Ba3 backed senior unsecured rating on Greenland Hong Kong's MTN program, the Ba3 senior unsecured rating on Greenland Hong Kong's USD notes, 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 Hong Kong, Greenland Holding Group Company Limited (Ba1 stable), and the bond trustee.

The outlook remains stable.

RATINGS RATIONALE

"The affirmation of the Ba2 CFR reflects Greenland Hong Kong's improving standalone credit profile and a one-notch rating uplift for expected support from its parent, Greenland Holding, when needed," says Danny Chan, a Moody's Assistant Vice President.

"However, while we expect the company will continue to receive strong financial and operating support from its parent, its Ba2 CFR is also constrained by Greenland Holding's credit profile, as reflected by its Ba1 CFR," adds Chan.

Greenland Hong Kong's improving standalone credit profile is reflected by its strengthening financial leverage and liquidity, growing contracted sales and broader geographic coverage.

Moody's expects that Greenland Hong Kong's revenue/adjusted debt will stay at 85%-90% in the next 12-18 months, following an increase to 86% for the 12 months ended 30 June 2019 from 80% in 2018.

The improvement will be driven by mild revenue growth and lower debt following the company's planned disposal of a mixed use property project in Shanghai. The disposal is consistent with the company's increased focus on residential developments, and will be completed by the end of 2019.

Moody's also expects Greenland Hong Kong will control its debt while pursuing growth, and keep its land acquisitions at 30%-35% of contracted sales.

While Moody's expects EBIT/interest coverage will slightly decline to 3.6x-3.9x over the next 12-18 months from 4.3x for the 12 months ended 30 June 2019, mainly due to a reduction in profit margins, the projected ratios remain supportive of its standalone credit profile.

Moody's further expects the company's contracted sales will grow to RMB50-60 billion in the next 12-18 months, supported by its good sales execution and sufficient saleable resources. These contracted sales will support the company's cash flow and future revenue growth.

Greenland Hong Kong recorded 38% year-on-year contracted sales growth during the first eight months of 2019 to RMB30.2 billion, following 26% and 65% growth in 2018 and 2017.

The company also maintained a land reserve of 20.1 million sqm in gross floor area as of 30 June 2019, including land sold but not yet delivered, which could support 3-4 years of development.

Greenland Hong Kong's standalone credit profile also reflects its well-located land bank and good access to funding, given its status as a subsidiary of Greenland Holding.

Moody's assumption of support considers (1) Greenland Holding's 59.11% ownership of Greenland Hong Kong as of June 2019; (2) Greenland Hong Kong's role as the group's key platform to raise funds from offshore banks and capital markets to invest in property projects in China; (3) Greenland Holding's track record of providing financial support to Greenland Hong Kong in the form of equity injections; and (4) Greenland Hong Kong's growing economic importance to the group.

In terms of environmental, social and governance (ESG) factors, Greenland Hong Kong's Ba2 CFR considers the SOE status of 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. However, Greenland Hong Kong has indicated that it plans to reduce such transactions over the next 2-3 years, mitigating the associated risks.

Greenland Hong Kong's senior unsecured rating is one notch lower than it would otherwise be because of the risk of structural subordination. This risk reflects (1) 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 (2) Moody's view that the senior unsecured rating, in the absence of a parental guarantee, should be lower than the Ba2 rating of the senior unsecured notes issued by Greenland Global Investment Limited and guaranteed by its parent, Greenland Holding.

The stable outlook for Greenland Hong Kong reflects Moody's expectation that Greenland Holding will provide financial and operational support in times of need, and that Greenland Hong Kong's standalone credit profile will remain stable over the next 12-18 months.

Greenland Hong Kong's ratings could be upgraded if (1) Greenland Holding's CFR is upgraded; (2) Greenland Hong Kong successfully implements its business plan and improves its scale and diversity; and (3) it improves its credit metrics, such that debt leverage — as measured by revenue/adjusted debt — rises above 85%-90%, and adjusted EBIT/interest rises above 3.5x-4.0x on a consistent basis.

On the other hand, Greenland Hong Kong's ratings could be downgraded if the company (1) fails to generate operating cash flow to maintain its liquidity buffer; (2) fails to maintain contracted sales and revenue growth; or (3) materially accelerates development, and executes an aggressive land acquisition plan or acquisitions, such that debt leverage — as measured by revenue/adjusted debt — falls below 65%-70% on a sustained basis.

Any evidence of a reduction in ownership or weakening of support from its parent, or a downgrade of Greenland Holding's CFR, will result in a downgrade of Greenland Hong Kong's ratings.

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.

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. At 30 June 2019, the company's land bank totaled 20.1 million square meters, and was located in key cities in the Pan-Yangtze River Delta and Pan-Pearl River Delta. Greenland Holding owned 59.11% of Greenland Hong Kong at 30 June 2019.

REGULATORY DISCLOSURES

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.

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.

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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​

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