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Rating Action:

Moody's affirms ratings for Greenland Holding and Greenland Hong Kong; changes outlook to stable from negative

 The document has been translated in other languages

20 Sep 2018

Hong Kong, September 20, 2018 -- Moody's Investors Service has changed to stable from negative the outlook on the ratings of Greenland Holding Group Company Limited (Greenland Holding) and its subsidiaries Greenland Gloabl Investment Limited (Greenland Global) and Greenland Hong Kong Holdings Limited (Greenland Hong Kong).

At the same time, Moody's has affirmed the following ratings:

1. The Ba1 CFR on Greenland Holding;

2. The (P)Ba2 backed senior unsecured rating on Greenland Global Investment Limited's (Greenland Global) medium-term note (MTN) program, with the notes unconditionally and irrevocably guaranteed by Greenland Holding;

3. The Ba2 backed senior unsecured ratings on Greenland Global's senior unsecured notes, which are unconditionally and irrevocably guaranteed by Greenland Holding;

4. The Ba2 CFR on Greenland Hong Kong;

5. The (P)Ba3 backed senior unsecured rating on Greenland Hong Kong's MTN program; and

6. 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.

RATINGS RATIONALE

"The change in ratings outlook to stable from negative reflects our expectation that Greenland Holding will continue to deleverage, using its improving operating cash flow, which is in turn due to the company controlling its capital spending and working capital requirements over the next 1-2 years," says Danny Chan, a Moody's Analyst.

"And, Greenland Holding's improving credit metrics will position the company appropriately at the Ba1 CFR level," adds Chan.

Moody's expects that Greenland Holding's revenue/adjusted debt will trend toward 130%-140% from 120% for the 12 months ended 30 June 2018 and EBIT/interest will improve to around 3.0x from 2.8x for the same period. These levels will position the company appropriately at the Ba1 CFR rating band, considering its large operating scale, strong access to funding, and business diversification.

The improvement in Greenland Holding's credit metrics will be driven by the company's slower debt growth, continued property sales growth, prudent land acquisition strategy, and a continued focus on improving its cash collection. The company reduced its reported debt to RMB264 billion at 30 June 2018 from around RMB277 billion at the end of 2017 and RMB286 billion at the end of 2016.

At the same time, Moody's forecasts that Greenland Holding will register contracted sales of around RMB400 billion in 2018 and RMB430--RMB450 billion in 2019, while maintaining its land acquisition spending below 30% of its annual contracted sales.

Such a low level of spending will be supported by the company's sizable land bank. Moody's estimates that Greenland Holding's land bank of 138 million square meters at 30 June 2018 will be sufficient to support its property development plans over the next four to five years.

The continued rise in contracted sales will provide important funding for Greenland Holding's business expansion and support its revenue growth over the next 12-18 months.

Moody's believes Greenland Holding's revenue will continue to rise steadily, driven by the growth in property sales and the expansion in its construction business. Its construction business accounted for around 49% of total revenues and 10% of total gross profits in 1H 2018, according to Moody's estimates.

The stable outlook on Greenland Holding's CFR reflects Moody's expectation that the company will continue to control its debt growth and pace of land acquisitions, while growing its scale over the next 12-18 months.

Greenland Holding's Ba1 CFR reflects the company's track record of delivering solid growth for its property development business and establishing leading market positions in its key markets, owing to its highly diversified geographic coverage in China (A1 stable).

The Ba1 rating also considers Greenland Holding's strong ability to access funding and acquire land by virtue of its status as a local state-owned enterprise, as well as its strong corporate status in Shanghai, given its important role in the urbanization of the city.

The key constraint on Greenland Holding's rating is its modest credit metrics, the result of its fast business expansion in the past. In addition, its rating is tempered by the execution risks associated with its fast growing non-property businesses. Nonetheless, such concerns are partly mitigated by the company's improving debt management over the past 12-18 months.

The change in Greenland Hong Kong's ratings outlook to stable from negative reflects Greenland Holding's improved ability to provide support to Greenland Hong Kong.

The stable outlook for Greenland Hong Kong's ratings reflects Moody's expectation that Greenland Holding will provide Greenland Hong Kong with 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 Ba2 CFR includes a two-notch rating uplift, based on Moody's expectations that the company will receive strong support from Greenland Holding in times of need.

Greenland Hong Kong's standalone credit profile reflects its developing but well-located land bank, and Moody's expectation that it will grow in size through organic expansion and increased levels of operational integration with its parent.

Its standalone credit profile also takes into consideration Greenland Holding's support for Greenland Hong Kong's operations and access to funding.

Moody's could upgrade Greenland Holding's rating if the company can: (1) sustain its leading position in China's residential market; (2) maintain prudent practices in its land acquisitions and financial management; and (3) improve its credit metrics, such that revenue/debt is above 140% and EBIT/interest is above 3.5x on a sustained basis.

On the other hand, Greenland Holding will face downward rating pressure if the company shows: (1) weak sales performance or weak collections on its sales proceeds; (2) a decline in profit margins; (3) a sizeable increase in debt, arising from aggressive expansion or land acquisitions; and/or (4) an increase in the risk profile of its non-property businesses.

Moody's would consider downgrading the rating if the company's credit metrics weaken, with revenue/adjusted debt below 100%, and consolidated EBIT/interest coverage below 2.0x-2.5x on a sustained basis.

A material reduction in the Shanghai government's ownership in Greenland Holding — which leads to a negative effect on the company's access to funding — would also be negative for the rating.

Upward ratings pressure on Greenland Hong Kong could emerge if the company can: (1) successfully implement its business plan; (2) improve its scale and diversity; and (3) improve its credit metrics, such that debt leverage — as measured by revenue/adjusted debt — is above 85%-90%, and adjusted EBITDA/interest rises above 3x-3.5x on a consistent basis.

In addition to the considerations above, Moody's would only upgrade Greenland Hong Kong's ratings if the parent's rating is upgraded.

On the other hand, Greenland Hong Kong's ratings could come under downward pressure 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 60%-65% 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 rating, 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 Holding Group Company Limited is a China-based company and state-controlled enterprise group. The Shanghai State-owned Assets Supervision and Administration Commission is effectively the largest shareholder of Greenland Holding. The company is headquartered in Shanghai, with a focus on the real estate sector. It also engages in other businesses, including construction, finance and auto dealerships.

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 2018, the company's land bank totaled 20 million square meters, located in key cities in the Pan-Yangtze River Delta and Pan-Pearl River Delta. Greenland Holding owned 59.07% of Greenland Hong Kong at 30 June 2018.

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 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
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

Gary Lau
MD - Corporate Finance
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.
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