Hong Kong, October 21, 2020 -- Moody's Investors Service has assigned a Ba3 senior unsecured debt rating
to Greentown China Holdings Limited's proposed USD notes.
The outlook is stable.
Greentown plans to use the proceeds from the proposed notes to refinance
its existing medium to long-term offshore debt, which will
mature within one year.
RATINGS RATIONALE
"Greentown's Ba3 CFR incorporates its standalone credit strength
and a two-notch rating uplift based on Moody's expectation that
the company will receive extraordinary financial support from China Communications
Construction Group (Limited) (CCCG) in times of financial distress,"
says Celine Yang, a Moody's Assistance Vice President and Analyst.
Greentown's standalone credit strength reflects its (1) well-established
market position in property development in Hangzhou City and Zhejiang
Province; (2) long operating track record, good brand name,
quality products and large nationwide land bank; (3) improved financial
management and funding costs as part of CCCG; and (4) good liquidity.
"On the other hand, the standalone credit strength is constrained
by its continued high debt leverage, partially because of its ongoing
need to purchase land to sustain sales growth and its long project development
cycles given its high product quality standards," adds Yang.
The proposed note issuance will not materially affect Greentown's credit
metrics, because the company will use the proceeds to refinance
existing debt.
Moody's expects Greentown's debt leverage, as measured by revenue/adjusted
debt, to improve moderately to 45%-50% in the
next 12-18 months from 39% in 2019, because it will
scale back land acquisitions from the high levels recorded in 2019.
In addition, its adjusted EBIT/interest will improve slightly to
2.5x-2.7x from 2.3x during the same period.
Greentown's contracted sales increased 43.3% to RMB113.9
billion in the first nine months of 2020 compared to the same period last
year. Moody's expects its contracted sales to grow to around RMB160
billion in 2020 from RMB135 billion in 2019.
Greentown's senior unsecured bond rating is not affected by subordination
to claims at the operating company level. This is because,
despite its status as a holding company, Moody's expects support
from CCCG to Greentown to flow through the holding company rather than
flowing directly to its main operating companies, thereby mitigating
any differences in expected loss that could result from structural subordination.
Greentown's liquidity is good. Moody's expect its cash holdings,
together with its contracted sales proceeds after deducting basic operating
cash flow items, to cover its maturing debt, committed land
premiums and dividends over the next 12-18 months.
In terms of environmental, social and governance (ESG) considerations,
Greentown's Ba3 CFR takes into consideration (1) the company's financial
policy to pursue expansion, which has resulted in high leverage;
(2) the company's good track record in operations and execution;
(3) the presence of strong shareholders; (4) the disclosure of significant
related-party transactions, as required under the Corporate
Governance Code for companies listed on the Hong Kong Exchange; and
(5) the presence of a diversified board of directors and three special
committees (an Audit Committee, Remuneration Committee, and
Nomination Committee) to supervise the company's operations. Greentown's
board has 12 directors in total and four of them are independent non-executive
directors (INEDs). All three special committees are chaired by
INEDs.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The stable outlook of Greentown reflects Moody's expectation that the
company will maintain its sales execution, stable financial profile
and adequate liquidity over the next 12-18 months. In addition,
the outlook reflects Moody's expectation that the support the company
will likely receive from CCCG, in times of need, will remain
unchanged.
Greentown's rating could be upgraded if it strengthens its financial and
liquidity positions.
Specifically, Moody's could upgrade the rating if (1) revenue/adjusted
debt exceeds 55%-60%; and (2) EBIT/interest
coverage rises above 2.5x.
A material reduction in contingent liabilities associated with joint ventures
or lower risks of providing funding support to joint ventures could also
be positive to the ratings. This could be a result of reduced usage
of joint ventures or a material improvement in the financial strength
of its joint venture projects.
Moody's could downgrade the rating if (1) contracted sales growth slows;
(2) Greentown's credit metrics weaken, with EBIT/interest
coverage falling below 1.5x, or revenue/adjusted debt falling
below 40% on a sustained basis; or (3) its liquidity deteriorates,
as reflected by cash/short-term debt falling below 1.0x.
Moody's could also downgrade the rating if the company's contingent liabilities
associated with joint ventures or the risks of providing funding support
to joint ventures increase materially. This could be a result of
a material deterioration in the financial strength and liquidity of its
joint venture projects or a substantial increase in its investments in
new joint venture projects.
The principal methodology used in this rating 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.
Greentown China Holdings Limited is a major property developer in China,
with a primary focus in Hangzhou City and Zhejiang Province. At
30 June 2020, the company had 172 projects with a total gross floor
area of 48.0 million square meters (sqm), with 28.0
million sqm attributable to the company.
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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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
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60322, Germany, in accordance with Art.4 paragraph
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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.
YuYing (Celine) Yang
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
