Hong Kong, October 15, 2020 -- Moody's Investors Service has assigned a Baa3 senior unsecured debt rating
to the proposed senior unsecured USD notes to be issued by Country Garden
Holdings Company Limited (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, good geographic diversification, strong liquidity
and solid track record of resilient operations through the cycles,"
says Celine Yang, a Moody's Assistant Vice President and Analyst.
"However, the company's credit profile is constrained
by its low profit margins and large exposure to lower-tier cities,
where demand can be volatile," adds Yang.
The proposed issuance will not materially affect Country Garden's
credit metrics, because the company will use the proceeds to refinance
existing debt.
Moody's expects Country Garden's leverage, as measured by revenue/adjusted
debt, will remain strong at 110%-115% in the
coming 12-18 months, compared with 114% for the 12
months ended June 2020. This improvement will be driven by growth
in revenue thanks to the company's strong contracted sales over the past
two to three years, as well as its disciplined approach to pursuing
growth and controlling debt increase.
Meanwhile, Moody's forecasts Country Garden's EBIT/interest will
improve slightly to 4.5x-4.7x from 4.4x over
the same period, driven by higher revenue recognition and declining
interest costs.
Country Garden's attributable contracted sales grew 6% in
the first nine months of 2020 compared with the same period last year,
despite impact from the coronavirus outbreak. Moody's expects
the company's annual attributable contracted sales will grow moderately
in 2020 and 2021, supported by the recovery of China's economic
growth and housing demand as the impact of the pandemic fades, together
with Country Garden's plan to launch more projects in the second
half of 2020.
Country Garden's issuer rating is not affected by the subordination to
claims at the operating company level. This is because, despite
its status as a holding company with most claims at the operating subsidiaries,
creditors of Country Garden 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, can 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 30 June 2020, compared with
2.3x at 31 December 2019.
In terms of environmental, social and governance (ESG) factors,
Moody's has considered the concentrated ownership by Country Garden's
key shareholder, Ms. Yang Huiyan, who held a total
57.6% stake in the company at 30 June 2020. Such
risk is partly mitigated by the presence of five independent non-executive
directors on its 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 last 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 on a sustained basis.
However, Moody's could downgrade the ratings if (1) 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%,
EBIT/interest 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 end of June 2020, the company's
land bank by attributable gross floor area (GFA) in China, including
that of joint ventures (JVs) and associates, was 172 million square
meters (sqm). Its revenue was RMB185 billion ($26 billion)
in H1 2020.
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.
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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
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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
