Hong Kong, March 29, 2019 -- Moody's Investors Service has affirmed Logan Property Holdings Company
Limited's Ba3 corporate family rating and B1 senior unsecured debt
ratings.
The ratings outlook is maintained at stable.
RATINGS RATIONALE
"Logan's Ba3 corporate family rating reflects the company's proven
track record of developing mass-market residential properties in
the Guangdong-Hong Kong-Macao Bay Area (Greater Bay Area)
and its market position as a leading developer in Shantou and Nanning,"
says Cedric Lai, a Moody's Assistant Vice President and Analyst.
"The rating also factors in Logan's strong gross profit margins,
which are high than those of its peers, supported by its solid cost
management and low-cost land bank," adds Lai.
Moody's estimates the company's gross profit margins will remain at 31%-33%
in the coming 12-18 months compared with 33.7% in
2018. Its low land costs also provide the company with pricing
flexibility if China's property market becomes more challenging in the
next 6-12 months.
However, the company's rating is constrained by its moderately
high debt leverage and geographic concentration in Southern China.
Nevertheless, Moody's expects Logan's debt leverage -- as measured
by revenue/adjusted debt -- will improve towards 65%-70%
over the next 12-18 months from 60% in 2018, driven
by strong revenue growth and disciplined land purchases.
Given the company's high gross margins, its EBIT/interest
will also remain strong at 4.0x-4.5x over the same
period, compared with 4.6x in 2018.
Logan's liquidity is fairly strong, with its reported cash balance
of RMB35.7 billion at the end of 2018 covering 206% of its
reported short-term debt. Such liquidity strength is the
result of its good access to funding, proactive management of debt
refinancing needs, and cash inflow from its strong contracted sales.
The company's contracted sales grew 11% year-on-year
to RMB9.2 billion in the first two months of 2019, after
recording 65% year-on-year growth to RMB71.8
billion for the full year 2018.
Moody's expects the company's contracted sales will grow to RMB80
billion - RMB85 billion in 2019, underpinned by its track
record of sales execution and good housing demand in the Greater Bay Area.
The stable rating outlook reflects Moody's expectation that Logan
will maintain strong contracted sales growth, high gross margins,
high revenue growth, good liquidity, and good discipline in
land acquisitions.
The B1 senior unsecured debt rating is one notch lower than the corporate
family rating due to structural subordination risk.
This subordination risk refers to the fact that the majority of Logan's
claims are at its 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. Consequently, the expected recovery rate for
claims at the holding company will be lower.
Upward ratings pressure could emerge if Logan (1) establishes a track
record of stable contracted sales growth while maintaining strong liquidity
and profit margins; (2) grows in scale and improves geographic diversification;
and (3) improves debt leverage.
Credit metrics indicative of upward rating pressure include homebuilding
EBIT/interest coverage in excess of 3.5x-4.0x and
revenue/adjusted debt in excess of 85%-90% on a sustained
basis.
Downward ratings pressure could emerge if the company records (1) weak
contracted sales growth, aggressive land acquisitions, a weakening
liquidity position or declining profit margins; or (2) weakening
credit metrics.
Credit metrics indicative of downward rating pressure include (1) cash/short-term
debt below 100%-125%; (2) homebuilding EBIT/interest
coverage below 2.5x-3.0x; or (3) revenue/adjusted
debt below 60%-65% on a sustained basis.
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.
Established in 1996, Logan Property Holdings Company Limited is
a property developer based in Shenzhen. The company's principal
focus is on residential projects in Shenzhen, Shantou, Nanning
and Huizhou.
The company listed on the Hong Kong Stock Exchange in December 2013.
At the end of 2018, the company's land bank totaled 36 million square
meters in gross floor area across different cities in China, including
Shenzhen, Shantou, Nanning and other cities in the Greater
Bay Area, as well as some offshore projects in Hong Kong and Singapore.
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
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
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Please see www.moodys.com for any updates on changes to
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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.
Cedric Lai
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
Chris Park
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
