Hong Kong, May 25, 2020 -- Moody's Investors Service has affirmed Sino-Ocean Group Holding
Limited's (Sino-Ocean) Baa3 issuer rating.
At the same time, Moody's has affirmed (1) the Baa3 senior unsecured
ratings on the bonds issued by Sino-Ocean Land Treasure Finance
I Limited, Sino-Ocean Land Treasure Finance II Limited,
and Sino-Ocean Land Treasure IV Limited and guaranteed by Sino-Ocean,
and (2) the Ba2 rating on the Subordinated Guaranteed Perpetual Capital
Securities issued by Sino-Ocean Land Treasure III Limited and guaranteed
on a subordinated basis by Sino-Ocean.
The outlook remains stable.
RATINGS RATIONALE
"The rating affirmation reflects our expectation that Sino-Ocean's
credit metrics will improve over the next 12-18 months from the
moderate levels recorded in 2019, supported by solid growth in revenues
and the company's disciplined approach to land acquisitions,"
says Cedric Lai, a Moody's Vice President and Senior Analyst.
Specifically, Moody's expects Sino-Ocean's debt
leverage, as measured by revenue/adjusted debt, will trend
towards 60%-65% over the next 12-18 months
from 58.3% in 2019. Similarly, Sino-Ocean's
interest coverage, as measured by adjusted EBIT/ Interest coverage,
should improve to 2.8x-3.0x in the next 12-18
months from 2.5x in 2019. These projected metrics are appropriate
for the company's standalone credit profile.
The company's contracted sales fell 29% to RMB23.6 billion
in the first four months of 2020 when compared to the same period last
year, due to the impact from the coronavirus outbreak. But
Moody's expects the company's contracted sales will recover gradually
through the remainder of 2020 as the company will launch more new property
projects.
Sino-Ocean's Baa3 issuer rating reflects (1) the company's standalone
credit profile; and (2) a two-notch uplift reflecting Moody's
expectation that the company will receive strong support from its largest
shareholder China Life Insurance Co Ltd (China Life, insurance financial
strength A1 stable), in times of need.
Sino-Ocean's standalone credit profile reflects its (1) long operating
history in China's property sector, (2) focus on conducting
business in high-tier Chinese cities, (3) good access to
funding and diversified products, and (4) increasing recurring revenue
contributions from its investment property portfolio.
On the other hand, the standalone credit profile is constrained
by its moderate financial metrics.
The two notches of uplift reflects Moody's expectation that China Life
will continue to provide financial support to Sino-Ocean and treat
Sino-Ocean as a strategic investment. This view also factors
in China Life's strong ability to provide support to Sino-Ocean,
as illustrated by its A1 insurance financial strength.
In terms of environmental, social and governance (ESG) considerations,
Moody's has considered the company's (1) financial policy to pursue
expansion, which has resulted in a moderately high leverage;
(2) good track record in operations and sales execution; (3) strong
shareholders and representation in the board of directors; (4) disclosure
of material related-party transactions as required under the Corporate
Governance Code for companies listed on the Hong Kong Exchange; and
(5) diversified board of directors and four special committees to supervise
the company's operations.
The company also has a stable dividend policy, as reflected by its
dividend payout of around 30%-40% of its net profits
over the past five years.
Moody's regards the impact of the deteriorating global economic
outlook amid the rapid and widening spread of the coronavirus outbreak
as a social risk under its ESG framework, given the substantial
implications for public health and safety.
The stable rating outlook reflects Moody's expectation that Sino-Ocean's
credit metrics will improve to levels supportive of its rating over the
next 12-18 months, and that Moody's assumption of support
from China Life will remain unchanged.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on Sino-Ocean's issuer rating could emerge,
if the company grows its scale through stable sales growth, while
maintaining a strong liquidity position, prudent financial management,
and disciplined land acquisitions.
Credit metrics indicative of upward rating pressure include its (1) EBIT/interest
staying above 4.25x; (2) adjusted revenue/debt staying above
90%-100%; or (3) adjusted debt/capitalization
staying below 40% on a sustained basis.
An upgrade of China Life's rating would not have an immediate impact on
Sino-Ocean's rating, without a material improvement in Sino-Ocean's
standalone credit profile.
On the other hand, downward rating pressure could emerge,
if Sino-Ocean suffers a deterioration in its sales execution,
gross profit margin, debt leverage or liquidity position.
Credit metrics indicative of a downgrade include its (1) EBIT/interest
staying below 2.7x; (2) revenue/adjusted debt staying below
60%; or (3) adjusted debt/capitalization staying above 50%
on a sustained basis.
Moody's could also downgrade the ratings without a decline in the company's
standalone credit quality, if Moody's believes that support from
its parent has deteriorated. This situation could result from any
evidence of a reduction in the ownership by or a weakening of the support
from China Life, or a deterioration in China Life's own credit profile.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018 and available at https://www.moodys.com/research/Homebuilding-And-Property-Development-Industry--PBC_1108031.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Sino-Ocean Group Holding Limited is a leading property developer
in China. The company focuses on developing mid to high-end
residential properties, office premises and retail properties.
At 31 December 2019, the company had a land bank of about 37.24
million square meters across 50 cities in China.
The Beijing-based company was listed on the Hong Kong Stock Exchange
in September 2007. China Life Insurance Co Ltd and Dajia Insurance
Group Co., Ltd. (formerly known as Anbang Insurance
Group Co., Ltd.) are its two largest shareholders,
with 29.59% and 29.58% equity stakes,
respectively, as of 31 December 2019.
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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Cedric Lai
Vice President - Senior 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
