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
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sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
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The first name below is the lead rating analyst for this Credit Rating
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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.)
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Franco Leung
Associate Managing Director
Corporate Finance Group
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Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077