Hong Kong, May 11, 2021 -- Moody's Investors Service has assigned a Baa3 senior unsecured rating
to the proposed USD notes to be issued by Country Garden Holdings Company
Limited (Country Garden, Baa3 stable).
Country Garden plans to use the proceeds from the proposed notes to refinance
its existing medium- to long-term offshore debt, which
will mature within one year.
RATINGS RATIONALE
Country Garden's Baa3 issuer rating reflects the company's strong brand
name, good geographic diversification, strong liquidity,
solid track record of resilient operations through the cycles, as
well as a sufficient land bank, which can support its business growth
over the next 3-4 years.
On the other hand, the company's rating is constrained by its low
profit margin and large exposure to lower-tier cities where demand
can be volatile.
"The proposed issuance will not materially affect Country Garden's
credit metrics because the company will use the proceeds to refinance
existing debt," says Celine Yang, a Moody's Vice President
and Senior Analyst.
Country Garden's credit metrics will maintain at strong level over the
coming 12-18 months. Specifically, Moody's expects
its revenue/adjusted debt and EBIT/interest coverage will strengthen to
125%-130% and about 4.5x, respectively,
over the next 12-18 months from 118% and 4.2x in
2020. This is because the company will control its debt growth,
such that revenue and EBIT growth will more than offset the increase in
its total debt and interest expense.
Country Garden's attributable contracted sales grew 28% year
on year to RMB192.4 billion for the first four months of 2021.
The improvement was partly driven by a low base in 2020. Moody's
expects the company's sales to grow moderately at around 5% year
on year over the next 12-18 months, supported by the company's
sufficient saleable resources and its strong sales execution ability.
Country Garden's senior unsecured rating is unaffected by subordination
to claims at the operating company level. Moody's considers that
despite Country Garden's status as a holding company — with most
claims at the operating subsidiary level — its creditors benefit
from the group's diversified business profile, with cash flow generation
across a large number of operating subsidiaries with high geographic diversification.
Such business diversification mitigates the structural subordination risk.
Country Garden's liquidity is excellent. Moody's expects the company's
cash holdings, along with its operating cash flow, will cover
its short-term debt and committed land payments over the next 12-18
months. The company's cash-to-short-term-debt
ratio remained strong at 1.9x as of the end of 2020, compared
with 2.3x as of the end of 2019.
In terms of environmental, social and governance (ESG) factors,
Moody's has considered the risks associated with the company's concentrated
ownership, given that its key shareholder, Ms. Yang
Huiyan, held a 59.06% stake in the company as of 31
December 2020. This risk is partly mitigated by the presence of
five independent non-executive directors on the company's 13-member
board of directors, and the presence of other internal governance
structures and standards as required under the Corporate Governance Code
for companies listed on the Hong Kong Stock Exchange. In addition,
its related-party transactions have been low relative to its sales,
staying at around 3%, and dividend payouts have been moderate,
remaining below 40% over the past five years.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook reflects Country Garden's good liquidity, underpinned
by its strong operating cash flow and good access to both the onshore
and offshore capital markets.
Moody's could upgrade Country Garden's ratings if it maintains its strong
operating profile as well as disciplined liquidity and financial management,
and demonstrates the sustainability of its business model with a high
level of business and financial stability.
Credit metrics indicative of an upgrade include (1) revenue/adjusted debt
above 120%-125%, (2) EBIT/interest over 6.5x-7.0x,
and (3) strong liquidity, with its cash/short-term debt above
1.5x, all on a sustained basis.
However, Moody's could downgrade the ratings if (1) the company's
sales deteriorate significantly; (2) its liquidity weakens;
or (3) it undertakes aggressive debt-funded expansion that weakens
its credit metrics, such that revenue/adjusted debt drops below
95%-100% and EBIT/interest falls below 4.5x-5x.
The principal methodology used in these ratings 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.
Country Garden Holdings Company Limited, founded in 1992 and listed
on the Hong Kong Stock Exchange, is a leading Chinese integrated
property developer. As of the end of December 2020, the company's
land bank by attributable gross floor area in China, including those
of its joint ventures and associates, was 275.2 million square
meters.
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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YuYing (Celine) Yang
Vice President - Senior 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
