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Rating Action:

Moody's assigns Baa2 to China Vanke's MTN drawdown

 The document has been translated in other languages

28 Feb 2019

Hong Kong, February 28, 2019 -- Moody's Investors Service has assigned a Baa2 senior unsecured rating to the proposed USD notes to be issued by Vanke Real Estate (Hong Kong) Company Limited under its USD7 billion medium-term note program (MTN, (P)Baa2).

The rating outlook is stable.

The proposed notes will be supported by a deed of equity interest purchase undertaking and a keepwell deed between China Vanke Co., Ltd. (Baa1 stable) — which owns a 100% stake in Vanke Real Estate — Vanke Real Estate (collectively the Vanke group), and the bond trustee.

The proceeds from the issuance will be mainly used to refinance offshore indebtedness and for general corporate purposes.

RATINGS RATIONALE

"The new issuance will lengthen the Vanke group's debt maturity profile and will not materially affect the group's financial profile, because the proceeds will be used mainly for refinancing existing indebtedness," says Kaven Tsang, a Moody's Senior Vice President.

The Baa2 rating for the notes incorporates Vanke Real Estate's ba2-level standalone credit strength and a three-notch rating uplift from China Vanke, reflecting Moody's expectation that China Vanke will provide financial support to Vanke Real Estate in times of stress.

Vanke Real Estate's standalone credit profile reflects the mid-sized scale of its operations in Mainland China and its fairly diversified geographic coverage; both factors of which are comparable to that for its Ba-rated Chinese property development peers.

Vanke Real Estate's standalone credit profile also factors in the operational and financial benefits arising from its close linkages to its parent, China Vanke, such as the parent's brand, execution and management expertise, as well as China Vanke's very diversified sales network and good access to funding.

The support assessment is based on: (1) China Vanke's full ownership of and operating support for Vanke Real Estate, with the latter forming a highly integrated part of the group; (2) Vanke Real Estate's role as the group's core platform for raising offshore funding to support projects in the group's home markets; and (3) China Vanke's track record of providing direct funding for Vanke Real Estate's projects.

China Vanke's Baa1 issuer rating continues to reflect its strong track record and branding in China's property market, as well as disciplined financial management, with solid financial metrics through the cycles.

China Vanke achieved 14.5% year-on-year growth in contracted sales to RMB607.0 billion in 2018. This scale of contracted sales positioned the company among the top three developers in China.

Moody's expects China Vanke's revenue/adjusted debt will improve to around 140% over the next 12-18 months from 113.3% for the 12 months ended 30 June 2018, because a robust growth in revenue — supported by strong contracted sales over the last two years — will more than offset a likely increase in debt.

At the same time, its net debt/net capitalization will remain healthy and in the 25%-30% range over the next 12-18 months, broadly unchanged from 28.6% at 30 June 2018. These ratios are in line with its current Baa1 issuer rating.

China Vanke's liquidity is strong, underpinned by its ample cash holdings of RMB159.6 billion at 30 June 2018. Its cash/short-term debt coverage remains healthy at 2.6x at 30 June 2018.

In Moody's view, the rating on the notes is unaffected by subordination to claims at the operating company level, because Moody's expects that support from the parent will flow through the holding company.

The stable outlook on China Vanke's issuer rating reflects Moody's expectation that the company will maintain financial discipline and healthy credit metrics over the next 12-18 months, as it pursues further growth.

Moody's could upgrade China Vanke's issuer rating if the company: (1) achieves strong recurring income that can buffer against the volatility associated with its development business; and (2) maintains low debt leverage, with adjusted net debt/net capitalization below 20% and revenue/adjusted debt above 200% on a sustained basis.

Moody's could downgrade the issuer rating, if the company's performance and/or financial position are materially and adversely affected by regulatory changes, aggressive debt-funded expansion or severe down-market conditions.

Credit metrics indicative of downgrade rating pressure include adjusted net debt/net capitalization exceeding 30%, and revenue/adjusted debt falling below 140%-145% on a sustained basis.

Any signs of weakening liquidity — such that the company's cash holdings fall below 1.25x-1.50x of short-term debt on a sustained basis, or if China Vanke demonstrates a reduced ability to access the bank or capital markets — would also weigh on its rating.

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.

China Vanke Co., Ltd. was founded in 1984 and started its real estate operations in 1988. It is one of the largest property developers in China by contracted sales. At 30 June 2018, it had an attributable land bank of 88.7 million square meters in gross floor area across China's four major economic regions of Shanghai, northern, southern, and central and western China. The company listed on the Shenzhen Stock Exchange in 1991 and on the Hong Kong Stock Exchange (HKSE) in 2014.

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.

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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

Chris Park
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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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