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04 Aug 2010
Approximately USD 1,120 million of debt affected
Hong Kong, August 04, 2010 -- Moody's Investors Service has today assigned a senior unsecured rating
of Ba3 to Country Garden Holdings Limited's ("Country Garden") proposed
5-year senior unsecured Regulation S bonds. The rating outlook
Moody's has also affirmed Country Garden's Ba2 corporate family rating
with a negative outlook.
The bonds will rank pari passu with the company's other senior unsecured
obligations. The bond rating has been lowered by one notch to reflect
the risk of legal and structural subordination, as subsidiary and
secured debt will still comprise more than 15% of the company's
The proceeds from the bonds will be used to fund Country Garden's purchase
of its convertible bonds with a put option in February 2011,future
land acquisitions, and working capital.
"This issue of additional bonds will increase Country Garden's adjusted
debt leverage temporarily above 50%," says Peter Choy,
a Moody's Vice President and Senior Credit Officer, adding,
"However, Moody's expects the company will earmark part
of the bond proceeds to the full repayment of the convertible bonds in
Feb 2011 which will help reduce adjusted debt leverage to below 50%
in 2H 2011."
"The new bonds will also enhance Country Garden's liquidity
and will improve its debt capital structure through term funding,"
"The Ba2 corporate family rating reflects its strong sales in the
suburban markets of economically strong Guangdong Province. In
addition, the company has the advantage of low land costs,
which offer pricing flexibility," says Choy.
"Furthermore, Country Garden's products -- sold at
affordable prices -- and its niche markets in second-
and third-tier cities are likely to be less affected by the current
tightening in regulatory measures," says Choy.
"The company's portfolio, which comprises more than 70 projects,
also provides good diversification and minimizes the risk of a material
decline in sales volume," adds Choy.
The rating is tempered by Country Garden's need for debt funding to support
its rapid growth model, which will keep its leverage at the high
end for its rating level. It is also constrained by the execution
risk on projects outside Guangdong Province. The rating finally
reflects the company's reliance on cash flow from this province.
The outlook is negative, reflecting the need to overcome the execution
risk on its lower profit margin projects outside Guangdong and the somewhat
weak credit metrics for its rating level.
However, the outlook could return to stable if the company can demonstrate
continued improvement in the profitability of its projects outside Guangdong.
Moreover, its debt needs to decline, such that Adjusted Debt/Total
Capitalization is maintained at or below 45%.
Meanwhile, downward rating pressure could emerge if Country Garden
(1) experiences difficulty implementing its current business plan;
(2) sees its profit margins erode further; or (3) suffers from a
further weakening in the Chinese property market, such that its
operating cash flow is weaker than expected.
Thus, a downgrade could be considered if its EBITDA margin falls
below 20%; Adjusted Debt/Total Capitalization remains above
50% and is unlikely to be reduced; EBITDA/Interest declines
below 3.5x-4.0x for a prolonged period; or the
company reports continuous negative operating cash flow (before land payments),
which further weakens its liquidity.
The last rating action on Country Garden was taken on April 7, 2010
when Moody's assigned a Ba3 rating with a negative outlook to the
company's new USD 550 million 7-year senior unsecured bonds.
The principal methodology used in rating Country Garden was Moody's "Global
Rating Methodology on Homebuilding Industry," published in March
2009 and available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Founded in 1997 in China and listed in Hong Kong in April 2007,
Country Garden Holdings Company Limited is one of the leading integrated
property developers in China.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's Investors Service Hong Kong Ltd.
Moody's assigns Ba3 to Country Garden's proposed 5-year bonds
24/F One Pacific Place
China (Hong Kong S.A.R.)
No Related Data.
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