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Rating Action:

Moody's assigns Ba3 to CFLD's proposed USD notes

09 Jun 2020

Hong Kong, June 09, 2020 -- Moody's Investors Service has assigned a Ba3 senior unsecured rating to the proposed USD notes to be issued by CFLD (Cayman) Investment Ltd., an indirect wholly-owned subsidiary of China Fortune Land Development Co., Ltd. (CFLD, Ba3 stable). The notes will be unconditionally and irrevocably guaranteed by CFLD.

CLFD will use the proceeds from the note issuance for debt refinancing.

RATINGS RATIONALE

"The proposed bonds — which will be mainly used for debt refinancing — will not have a material impact on CFLD's debt leverage, but they will slightly improve the company's liquidity and debt maturity profile," says Danny Chan, a Moody's Assistant Vice President and Analyst.

CFLD's Ba3 CFR reflects its standalone credit strength and a one-notch rating uplift reflecting Moody's assessment that Ping An Life Insurance Company of China, Ltd. (A2 stable), as CFLD's second-largest shareholder with a 25.16% stake could provide extraordinary support to CFLD in times of need.

Moody's expects CFLD, under the ownership of Ping An Life, will enhance its management capability, business planning, financial management on debt and operating cash flow, and access to bank financing and the capital markets.

Moreover, CFLD's standalone credit strength reflects its strength in executing a business model of industrial park and residential property development. However, CFLD's standalone credit strength is constrained by the company's (1) small land bank that requires annual spending, and (2) a moderately high debt leverage.

CFLD's contracted sales in its residential property segment declined 48.3% to RMB15.7 billion in the first quarter of 2020 amid covid-19, following a 12% decline in 2019. However, Moody's expects its contracted sales to recover in the next 12 months because of an increase in salable resources from growth in contracted sales in the residential property segment. While Moody's will closely monitor its sales performance and cash collection, CFLD's credit profile will be under pressure if the expected improvement does not materialize.

Moody's expects that CFLD will gradually improve its debt leverage — as measured by revenue/adjusted debt — to about 60%-65% over the next 12-18 months from 56% at the end of 2019, supported by an increase in revenue in both the property development and industrial park businesses.

Similarly, the company's interest coverage — as measured by adjusted EBIT/interest —should increase to about 3.5x over the same period from 3.1x in 2019, which would support its standalone credit profile.

CFLD's refinancing need is high and will rely on new borrowings to cover its short-term debt, dividend payments, committed land premiums and other payables such as trust loans and asset management loans over the next 12 months. Nonetheless, it has a good track record of accessing different funding channels, including banks and capital markets, for debt refinancing to support its high funding needs.

Moody's has also considered the following environmental, social and governance (ESG) factors in CFLD's ratings.

Moody's regards the impact of the deteriorating global economic outlook amid the rapid and widening spread of the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

Regarding governance risk, the company's ownership is concentrated in the controlling shareholder Wen-Xue Wang, who, collectively with persons acting in concert, held a 37.17% stake in the company at the end of March 2020. This risk is mitigated by the corporate governance oversight provided by Ping An Life through its 25.16% stake and two seats on the nine-member board of directors.

CFLD Cayman's senior unsecured rating is unaffected by subordination risk from claims at the operating companies, because Moody's expects financial support from Ping An Life to flow through the holding company of CFLD rather than directly to the main operating companies, thereby mitigating any differences in expected loss that could result from structural subordination.

The stable outlook reflects Moody's expectations that (1) CFLD will gradually improve its debt leverage and cash collection while growing its contracted sales and industrial development service revenue, and (2) Ping An Life will remain an important shareholder and continue to provide operational and financial oversight and support.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Moody's could upgrade the ratings if the company (1) increases in scale by growing its residential property and industrial park businesses, (2) maintains good liquidity, and (3) improves its credit metrics, such that its revenue/adjusted debt exceeds 75%-80% and EBIT/interest exceeds 3.5x, both on a sustainable basis.

Moody's could downgrade the ratings if (1) the company records a weakening in its liquidity; (2) records a decline in property contracted sales or revenue from its industrial park business ; or (3) it's not able to improve its debt leverage, with revenue/adjusted debt remaining below 50% by the end of 2020 and below 60% by the end of 2021.

Any significant reduction in Ping An Life's ownership of CFLD or signs of weakening support would also trigger a downgrade of CFLD's ratings.

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.

China Fortune Land Development Co., Ltd. was established in 1998 and listed on the Shanghai Stock Exchange in 2011. The company engages in residential property development and the investment and operation of integrated industrial parks. The company's industrial park businesses include primary land development, infrastructure development and construction, industry development services, and property management and public services.

Ping An Life Insurance Company of China, Ltd. (A2 stable) is the second-largest life insurer in China by original premium income and 99.5% owned by Ping An Group and the life insurance arm of the group.

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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is 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

No Related Data.
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