Hong Kong, July 28, 2020 -- Moody's Investors Service has affirmed the following ratings:
• The Ba1 corporate family rating (CFR) on Greenland Holding Group
Company Limited;
• 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;
• 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 Holdings Limited;
• The (P)Ba3 backed senior unsecured rating on Greenland Hong Kong's
MTN program; and
• The Ba3 senior unsecured and 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.
All the outlooks of the above companies remain stable.
"The rating affirmation reflects our expectation that Greenland Holding
will continue to benefit from its close linkage with the Shanghai government,
despite the latter's plans to divest part of its shareholdings in
Greenland Holding," says Danny Chan, a Moody's Assistant Vice
President and Analyst. "We expect Greenland Holding will
maintain its strong funding access as a result, which will help
support its business growth," adds Chan.
On 26 July, Greenland Holding announced that Shanghai Urban Construction
Investment and Shanghai Real Estate Group, the two state-owned
companies that together own 46.37% of Greenland Holding's
shares, plan to divest up to a 17.5% stake in Greenland
Holding.
If fully executed, the divesture could reduce the two state-owned
companies' effective ownership in Greenland Holding to 28.87%
from 46.37%.
RATINGS RATIONALE
Moody's expects Shanghai SASAC will exercise prudence when reducing its
ownership to avoid triggering the change of control clause present in
some of its offshore USD notes -- particularly those issued before
2019, which require state-ownership is maintained above 40%.
In addition, Moody's expects the company's cash holdings,
together with cash flow generated from operating activities, will
be sufficient to cover its maturing debt - including puttable and
any accelerated repayments for the affected offshore notes, and
committed land payments over the next 12-18 months.
Greenland Holding's Ba1 corporate family rating (CFR) reflects its:
(1) large scale and nationwide coverage, as well as wide range of
products in the property business across different tier cities in China
(A1 stable); (2) fast-growing construction business driven
by acquisitions and organic growth; and (3) access to funding because
of its local state-owned enterprise (SOE) background.
On the other hand, Greenland Holding's rating is constrained by
its weak interest coverage and the execution risks associated with its
fast-growing construction business.
Moody's expects Greenland Holding's credit metrics to slightly weaken
over the next 12-18 months but remain appreciate for its Ba1 CFR
rating. Its revenue/adjusted debt will drop to around 131%
in 2020 from 137% in 2019, as construction suspensions and
delays caused by the coronavirus outbreak adversely affect the revenue
growth of its property development and construction businesses.
However, revenue/debt will likely recover to 143% in 2021,
supported by an expected rebound in revenue from these businesses and
slowing debt growth.
At the same time, Moody's expects Greenland Holding's EBIT/interest
coverage will decline to 2.7x-2.8x over the next
12-18 months from 3.3x in 2019, mainly because of
higher interest expenses as well as weakening profit margins due to increasing
revenue contributions from its low-margin construction business.
Greenland Holding's contracted sales fell by 20.7% to RMB133
billion in the first half of 2020 compared with the same period last year,
as disruptions caused by the coronavirus outbreak weakened sales.
Moody's expects Greenland Holding's contracted sales to recover
to RMB380 billion-RMB400 billion over the next 12-18 months
compared with RMB388 billion in 2019, supported by Greenland Holding's
sizable land bank and strong sales execution.
Greenland Hong Kong's Ba2 CFR includes a one-notch rating uplift,
based on Moody's expectation that the company will receive strong support
from Greenland Holding in times of need.
Greenland Hong Kong's standalone credit profile reflects its solid credit
metrics, well located land bank, and good liquidity and access
to funding, given its status as a 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.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
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.
Moody's could upgrade Greenland Holding's rating if the company
(1) sustains its leading position in China's residential property market;
(2) maintains prudent practices in its land acquisition and financial
management; and (3) improves its credit metrics, such that
revenue/debt remains above 140% and EBIT/interest remains above
3.5x on a sustained basis.
On the other hand, Moody's could downgrade Greenland Holding's
rating if (1) the company's sales performance deteriorates or it
collections of sales proceeds weaken; (2) its profit margin declines;
(3) its debt increases materially due to aggressive expansion or land
acquisitions; or (4) the risk profile of its non-property
businesses increases.
Moody's would also consider downgrading the rating if the company's credit
metrics weaken, such that its revenue/adjusted debt falls below
100% and adjusted EBIT/interest declines to 2.0x-2.5x
on a sustained basis.
A deterioration in its access to funding resulting from a significant
reduction in the Shanghai government's ownership of Greenland Holding
could also lead to a downgrade.
The stable outlook for Greenland Hong Kong reflects Moody's expectations
that (1) Greenland Holding will provide financial and operational support
to the company in times of need, and (2) Greenland Hong Kong's standalone
credit profile will remain stable over the next 12-18 months.
Moody's could upgrade Greenland Hong Kong 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) Greenland
Hong Kong improves its credit metrics, such that debt leverage —
measured as revenue/adjusted debt — rises above 85%-90%
and adjusted EBIT/interest rises above 3.5x-4.0x
on a consistent basis.
Greenland Hong Kong's rating 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)
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%
on a sustained basis.
Any evidence of a reduction in ownership or weakening in 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 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 dealings in construction, finance
and auto dealerships as well. The company reported revenue and
gross profits of RMB427.8 billion and RMB63.4 billion,
respectively, in 2019.
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 at
30 June 2020.
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.
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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
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.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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
