Hong Kong, July 07, 2020 -- Moody's Investors Service has assigned a Ba3 senior unsecured debt
rating to Greentown China Holdings Limited's proposed USD notes.
The rating outlook is stable.
Greentown will use the proceeds to refinance existing indebtedness.
RATINGS RATIONALE
"The proposed note issuance will not have a material impact on Greentown's
credit metrics, because the proceeds will mainly be used to refinance
existing debt," says Celine Yang, a Moody's Assistance Vice
President and Analyst.
Greentown's Ba3 corporate family rating (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 its largest shareholder China Communications Construction Group (Limited)
(CCCG), in times of financial distress.
The stable outlook on Greentown's rating reflects Moody's expectation
that the company will maintain its sales execution, stable financial
profile and adequate liquidity over the next 12-18 months.
Greentown's B2 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, and (3) improved
financial management and funding costs as part of CCCG; and (4) good
liquidity.
On the other hand, the B2 standalone credit strength is constrained
by its continuously high debt leverage, partially because of its
ongoing need to purchase land to sustain sales growth and longer project
development cycle given its high product quality standards.
Moody's expects Greentown's debt leverage, as measured by
revenue/adjusted debt, to improve moderately to 44%-45%
in the next 12-18 months from 39% in 2019, because
it will scale back land acquisition from the high levels recorded in 2019.
In addition, its adjusted EBIT/interest will improve slightly to
2.4x-2.5x from 2.3x during the same period.
Greentown's contracted sales increased 33.8% to RMB66.1
billion in the first six months of 2020 compared to the same period last
year. Moody's expects its contracted sales to grow slightly
to around RMB140 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.
In terms of environmental, social and governance (ESG) considerations,
Greentown's Ba3 CFR takes into consideration (1) the company's high leverage;
(2) the presence of strong shareholders; (3) the disclosure of significant
related-party transactions as required under the Corporate Governance
Code for companies listed on the Hong Kong Exchange; and (4) the
presence of diversified board of directors and three special committees
(including audit, remuneration and nomination committees) that are
chaired by INEDs.
Moody's has also considered that Greentown issued additional 323
million shares to Xinhu Zhongbao Co., Ltd. (B3,
Negative) in May 2020, which effectively reduced CCCG's ownership
of Greentown to 25.06% from 28.78% previously,
bringing it closer to the change of control threshold of 25% for
a few of its offshore bonds. A shareholding below such threshold
could trigger a repayment acceleration by its bondholders.
Nevertheless, Moody's expects the support from CCCG to remain
unchanged, given (1) it still has significant influence on the company
as its largest shareholder; (2) CCCG occupies four out of six executive
director seats on the company's board; (3) it has demonstrated a
willingness to provide financial support through a keepwell deed and a
deed of equity purchase, as well as through an investment and liquidity
support undertaking for Greentown's senior and perpetual bonds; and
(4) it has a strong ability to provide support, underpinned by its
large scale, strong business and financial profile, and good
access to funding.
Moody's regards the impact of 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.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
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 material improvement in the financial strengths of
its joint venture projects.
Moody's could downgrade the rating if (1) contracted sales growth slows;
(2) credit metrics weaken, with EBIT/interest coverage falling below
1.5x, or revenue/adjusted debt falling below 40% on
a sustained basis; or (3) 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 strengths and liquidity of its
joint venture projects or a substantial increase in investment 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 31 December 2019, the company had 142 projects with a total gross
floor area of 38.7 million square meters (sqm), with 22.4
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.
For ratings issued on a program, series, category/class of
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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
