Hong Kong, April 12, 2019 -- Moody's Investors Service has assigned a B3 senior unsecured rating to
the proposed USD notes to be issued by Guangzhou Fineland Real Estate
Development Co., Ltd. (B2 stable).
The proceeds from the proposed issuance will be used mainly to refinance
existing onshore debt.
RATINGS RATIONALE
"The proposed notes will lengthen Guangzhou Fineland's debt maturity profile
and will not materially affect the company's financial profile,
because the proceeds will be used to refinance existing debt," says
Kaven Tsang, a Moody's Senior Vice President.
Guangzhou Fineland's B2 corporate family rating (CFR) reflects its long
track record and established brand in Guangdong Province. The rating
also considers the company's ability to foster relationships with
domestic banks to support its property development business.
However, the company's B2 CFR is constrained by its: (1) small
scale; (2) high geographical concentration; (3) exposure to
low-tier cities; and (4) execution risk over the next two
to three years associated with the company's fast growth plan.
Moody's expects Guangzhou Fineland's leverage, as measured by revenue/adjusted
debt, will fall to 45%-50% over the next 12-18
months from an estimated 51% in 2018, due to the company's
debt funding needs to support its business growth.
At the same time, the company's interest-servicing ability,
as measured by adjusted EBIT/interest, will weaken to 2.0x-2.5x
over the next 12-18 months from an estimated level of around 2.7x
in 2018 due to higher debt and increased interest costs.
Moody's expects the company's contracted sales will grow by
10%-15% to RMB14-15 billion over the next
12-18 months, after registering robust 68.8%
year-on-year growth to RMB12.8 billion in 2018.
The expected sales growth will be supported by robust housing demand in
Guangzhou Fineland's core markets in Guangdong Province, and
will also support future revenue growth.
The development of the Greater Bay Area and the solid economic fundamentals
in Guangdong Province also partly mitigate concerns over Guangzhou Fineland's
concentrated operation in the province.
Guangzhou Fineland's liquidity is marginally adequate. The company's
reported cash balance of RMB2.0 billion at the end of September
2018 could cover its short-term debt of RMB1.3 billion and
unpaid land premiums.
The B3 senior unsecured rating on the proposed notes reflects the risk
of structural subordination, given the fact that the majority of
claims are at the 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, reducing the expected recovery rate for claims at
the holding company level.
The stable outlook on Guangzhou Fineland's ratings reflects Moody's
expectation that the company will maintain sufficient liquidity,
grow its scale as planned and maintain a disciplined approach to land
acquisitions.
Upward ratings pressure could emerge if Guangzhou Fineland (1) executes
its business plan to grow its scale; (2) strengthens its financial
profile; and (3) maintains sufficient liquidity.
Financial ratios indicative of upward ratings pressure include cash/short-term
debt of 1.5x, revenue/adjusted debt above 70%-75%
and EBIT/interest above 3.0x on a sustained basis.
Conversely, downward ratings pressure could emerge if (1) Guangzhou
Fineland suffers from weaker contracted sales; or (2) accelerates
its land acquisitions beyond Moody's expectation, in turn
weakening its financial metrics and liquidity.
Financial metrics indicative of downward ratings pressure include (1)
EBIT/interest coverage below 1.5x-2.0x; or (2)
a weakening liquidity position or rising refinancing risk, such
that cash/short-term debt falls below 1.0x.
The principal methodology used in this rating 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.
Founded in 1995, Guangzhou Fineland Real Estate Development Co.,
Ltd. is a property developer based in Guangdong Province targeting
mid to high-end customers. The company adopts Eastern-style
design within its development to cater for different customers.
At the end of September 2018, it had 38 property projects with an
aggregate gross floor area of 5 million square meter, with most
projects located in Guangdong Province. At the end of 2018,
the company was wholly owned by Fang Ming, who is also the founder
and chairman of the company.
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
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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.
Kaven Tsang
Senior Vice President
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
