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Rating Action:

Moody's downgrades CFLD's CFR to B2; reviews ratings for further downgrade

13 Jan 2021

Hong Kong, January 13, 2021 -- Moody's Investors Service has downgraded to B2 from Ba3 China Fortune Land Development Co., Ltd.'s (CFLD) corporate family rating (CFR) and CFLD (Cayman) Investment Ltd.'s backed senior unsecured rating.

At the same time, Moody's has placed the ratings under review for further downgrade. The previous outlook was negative.

"The downgrade reflects CFLD's weaker-than-expected operating performance and cash flow generation, which has heightened refinancing risk given its weak liquidity position and sizable debt maturing or becoming puttable over the coming 12-18 months," says Danny Chan, a Moody's Analyst.

"Meanwhile, the review for further downgrade reflects the uncertainties related to its refinancing plans," adds Chan.

RATINGS RATIONALE

Moody's expects CFLD's revenue/adjusted debt and EBIT/interest to decline to 35%-40% and 1.5x-2.0x respectively, over the next 12-18 months from the 50% and 2.8x it recorded for the 12 months ended 30 June 2020, driven mainly by weak revenue growth and sustained high debt.

This weak revenue growth is in turn driven by CFLD's weakened property sales in the past 12-18 months. CFLD's total contracted sales declined 40% year-over-year in the first nine months of 2020 to RMB60 billion, following a 12% decline in 2019. The sales decline was mainly driven by the weak residential property development business, with a 60% year-over-year drop in sales to RMB30 billion in that segment more than offsetting 37% year-over-year sales growth in its industrial segment during the first nine months of 2020.

Moody's expects the company's weak liquidity position will persist over the next 12-18 months as its sales performance will likely remain weak, in turn driven by home purchase restrictions that are still prevalent in many of CFLD's core markets and the generally tight policies on credit growth in the China's property sector.

Moody's estimates that CFLD has about RMB90 billion of debt maturing in 2021 - including onshore bonds of RMB24 billion and offshore senior unsecured notes of USD1.6 billion (or RMB11 billion) -- far exceeding its cash balance of RMB38 billion as of September 2020.

CFLD's cash holdings and expected operating cash flow will be insufficient to cover its maturing debt and unpaid land premiums over the next 12-18 months. As such, the company will need to rely on additional debt or other forms of capital to address its refinancing needs. While CFLD has a track record of refinancing maturing onshore and offshore debt, its weak operating performance and the tightened funding environment have weakened its access to funding.

CFLD's refinancing risk could be mitigated by support from its second-largest shareholder, Ping An Life Insurance Company of China, Ltd. (A2 stable), which owns a 25% equity stake in CFLD. Ping An and its affiliates have provided debt funding to CFLD over past 6-12 months, including Ping An Life's subscription to CLFG's RMB12 billion perpetual bonds. However, CFLD's refinancing risks could escalate if there are any signs of weakening support from Ping An.

CFLD's B2 corporate family rating (CFR) reflects its standalone credit strength and a one-notch uplift based on Moody's expectation that Ping An Life will provide support to CFLD in times of need.

With regards to governance risk, Moody's has considered CFLD's aggressive financial policy and the concentration of ownership in its controlling shareholder, Mr. Wen-Xue Wang, who collectively with persons acting in concert held a 37.20% stake in the company at the end of June 2020, with 32.13% of this stake pledged as of the same date.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's review will focus on (1) CFLD's plans to refinance its maturing debt in 2021, including the USD530 million bond due Feb 2021; (2) its liquidity position and fundraising capability to repay or refinance the maturing debt; and (3) its relationship with Ping An, and in particular any signs of direct or indirect support from Ping An.

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.

China Fortune Land Development Co., Ltd. was established in 1998 and listed on the Shanghai Stock Exchange in 2011. The company engages in residential property development and the investment and operation of integrated industrial parks. The company's industrial park businesses include primary land development, infrastructure development and construction, industry development services, and property management and public services.

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 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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 entities are participating and the rated entities or their agent(s) generally provide 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Danny Chan
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

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.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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