Hong Kong, November 04, 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 USD9.5 billion medium-term note
program (MTN, (P)Baa2).
Vanke Real Estate is 100% owned by China Vanke Co.,
Ltd. (Baa1 stable, collectively: the Vanke Group).
The proposed notes will be supported by a deed of equity interest purchase
undertaking and a keepwell deed between China Vanke, Vanke Real
Estate, and the bond trustee.
The notes' proceeds will be mainly used to refinance existing debt
and for general corporate purposes.
RATINGS RATIONALE
"The new issuance will extend Vanke Group's debt maturity profile without
materially affecting its financial profile, as the proceeds will
be mainly used to refinance existing debt," says Kaven Tsang,
a Moody's Senior Vice President.
The Baa2 senior unsecured rating for the notes incorporates Vanke Real
Estate's 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 need.
Vanke Real Estate's standalone credit profile reflects its mid-size
operational scale in China (A1 stable), and the operational and
financial benefits arising from the close links with its parent China
Vanke, such as the parent's brand, execution and management
expertise, highly diversified sales network, and good access
to funding.
Moody's support assessment is based on: (1) China Vanke's
full ownership of and operational support for Vanke Real Estate,
with the latter forming a highly integral part of the company; (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 ability to provide support is reflected by its Baa1 issuer
rating, which reflects the company's strong track record in
property sales execution and its position as a leading property developer
in China, in terms of scale and brand. In addition,
the rating takes into consideration the company's disciplined financial
management, as reflected by its solid financial metrics and strong
liquidity through the cycles.
At the same time, the Baa1 rating also considers the company's (1)
higher requirements than those of its peers to replenish its land bank,
given its strategy of not holding a sizable land bank; and (2) increasing
funding needs to support its expansion in both residential and logistics
properties.
Moody's expects China Vanke's revenue/adjusted debt will stay at 125%-135%
over the next 12-18 months, versus 126% for the 12
months ended 30 June 2019. This is because robust growth in revenue
— supported by strong contracted sales over the last two years —
will more than offset a likely increase in debt.
Meanwhile, its EBIT/interest will remain largely stable around 7.0x-7.2x
over the next 12-18 months, versus 7.0x for the 12
months ended 30 June 2019. These ratios are in line with its current
Baa1 issuer rating.
China Vanke achieved 10.2% year-on-year growth
in contracted sales, reaching RMB475.6 billion in the first
three quarters of 2019, after 14.5% growth in 2018.
This scale of contracted sales positions the company among the top three
developers in China.
With respect to environmental, social and governance (ESG) factors,
China Vanke's Baa1 issuer rating has taken into account the company's
(1) disciplined financial management, as reflected by its low balance-sheet
leverage; (2) good operating track record; (3) low risk of concentrated
ownership, as no shareholders holds more than 30% in the
company, and the largest shareholder does not get involved in the
company's daily operations; (4) its disclosure of material related-party
transactions as required by the Hong Kong and Shenzhen stock exchanges;
and (5) the presence of a board of directors and three special committees
to supervise the company's operations.
China Vanke's liquidity is strong, underpinned by its RMB107.2
billion in cash holdings at 30 September 2019. Its cash/short-term
debt coverage remains healthy at 1.7x at 30 September 2019.
Moody's expects China Vanke's cash holding and operating cash
flow to fully cover its committed land payments and refinancing needs
over the next 12-18 months.
The notes' rating 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.
China Vanke's stable outlook reflects Moody's expectation that the company
will maintain financial discipline and healthy credit metrics over the
next 12-18 months, as it accelerates its expansion.
Moody's could upgrade China Vanke's issuer rating if the company (1) records
strong recurring income that provides it with a buffer against volatility
in the property development business; and (2) maintains low debt
leverage, with its adjusted net debt/net capitalization staying
below 20% on a sustained basis.
On the other hand, Moody's could downgrade the issuer rating if
the company's performance or financial position is materially and adversely
affected by regulatory changes, aggressive debt-funded expansion,
or severe down-market conditions, such that its adjusted
net debt/net capitalization exceeds 30%, revenue/adjusted
debt falls below 125%-130% and EBIT/interest falls
below 6.5x-7.0x, all on a sustained basis.
The company's rating could also be pressured in case of any sign
of weakening liquidity, such that the company's cash holdings fall
below 1.25x-1.50x its short-term debt on a
sustained basis, or if its ability to access the bank or capital
markets weakens.
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 2019,
it had an attributable land bank of 92.9 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, 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.
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.
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
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
