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Rating Action:

Moody's downgrades Greenland Holding's and Greenland HK's ratings; places ratings on review for downgrade

 The document has been translated in other languages

18 Oct 2021

Hong Kong, October 18, 2021 -- Moody's Investors Service has downgraded the corporate family rating (CFR) of Greenland Holding Group Company Limited to Ba2 from Ba1.

Moody's has also downgraded the following ratings:

• The backed senior unsecured rating of Greenland Global Investment Limited's medium-term note (MTN) program to (P)Ba3 from (P)Ba2;

• The backed senior unsecured rating of Greenland Global's senior unsecured notes to Ba3 from Ba2;

• The CFR of Greenland Hong Kong Holdings Limited to Ba3 from Ba2;

• The backed senior unsecured rating on Greenland Hong Kong's MTN program to (P)B1 from (P)Ba3; and

• The backed senior unsecured rating on Greenland Hong Kong's USD notes to B1 from Ba3.

Greenland Global's MTN program and senior unsecured notes are unconditionally and irrevocably guaranteed by Greenland Holding.

Greenland Hong Kong's MTN program and the related notes are supported by a deed of equity interest purchase undertaking and a keepwell deed between Greenland Holding, Greenland Hong Kong and the bond trustee.

At the same time, Moody's has placed the ratings on review for further downgrade.

The rating outlooks were negative before the review for downgrade.

"The downgrade reflects our expectation that Greenland Holding's credit metrics and liquidity will weaken over the next 6-12 months amid tight funding conditions and the company's large debt maturity," says Kaven Tsang, a Moody's Senior Vice President.

"The review for downgrade reflects the uncertainty over the company's ability to generate enough operating cash flow to materially reduce its debt to more sustainable levels while maintaining ongoing access to funding and adequate liquidity, given the tight funding environment in the property sector," adds Tsang.

RATINGS RATIONALE

Greenland Holding's CFR continues to reflect the company's large scale, good geographic and product diversification in China; and better access to onshore bank funds than its privately-owned property peers in China, given its linkage with the Shanghai government.

However, the CFR is constrained by the company's high exposure to the construction sector, which drags the company's overall profitability; and its weakened access to debt capital markets, which raises its challenges to refinance its sizable offshore debt maturities.

Moody's believes Greenland Holding is unlikely to issue new offshore bonds at reasonable funding cost to refinance its maturing debt over the next 6-12 months. It would likely use internal cash to repay its debt, which will reduce the funding available for its operations over the next 12-18 months.

Moody's also expects Greenland Holding's contracted sales will decline over the next 6-12 months, driven by weaker homebuyer confidence amid tight funding conditions. This will weaken the company's credit metrics, operating cash flow and in turn its liquidity.

The backed senior unsecured rating to the bonds guaranteed by Greenland Holding is one notch lower than the CFR because of the risk of structural subordination. This risk reflects the fact that most of the claims are at the operating subsidiaries and have priority over claims at the holding company in a bankruptcy scenario. In addition, the holding company lacks significant mitigating factors for structural subordination. As a result of these factors, the expected recovery rate for claims at the holding company will be lower.

The downgrade of Greenland Hong Kong's CFR also reflects Greenland Holding's weakened ability to provide support. Moody's also expects that Greenland Hong Kong's contracted sales will decline over the next 6-12 months, driven by weaker homebuyer confidence amid tight funding conditions. This will weaken the company's credit metrics and liquidity, which no longer support its previous Ba2 CFR.

Greenland Hong Kong's CFR factors in the company's substantial state ownership through its largest shareholder, Greenland Holding, as well as the company's history of related-party transactions with Greenland Holding, such as the provision of shareholder loans and payables and asset sales. Greenland Hong Kong's CFR also considers the company's modest operating scale and the execution risks associated with its fast growth plan.

Greenland Hong Kong's backed senior unsecured rating is one notch lower than the CFR, reflecting (1) the fact that most of the claims are at the operating subsidiaries' level and have priority over claims at the holding company (Greenland Hong Kong) in a bankruptcy scenario; and (2) Moody's view that this rating, in the absence of a parental guarantee, should be lower than the rating of the senior unsecured notes directly guaranteed by Greenland Holding.

With respect to environmental, social and governance (ESG) factors, Greenland Holding's CFR takes into account its state-owned enterprise (SOE) background; its disclosure of significant related-party transactions as required of its parent company, Greenland Holdings Corporation Limited, by the relevant codes for companies listed on the Shanghai Stock Exchange; and the presence of a diversified board of directors with four independent non-executive directors, and four special committees to supervise the company's operations.

Moody's review will focus on (1) Greenland Holding's access to funding, its liquidity and refinancing risks, specifically its ability to address its maturing debt (including puttable bonds) while maintaining adequate liquidity; (2) its ability to sustain stable sales and operating cash flow generation to reduce its leverage on a sustained basis; (3) its ability to provide support to Greenland Hong Kong; and (4) Greenland Hong Kong's ability to maintain stable sales, solid financial metrics and liquidity.

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

Moody's could downgrade Greenland Holding's ratings if its liquidity and refinancing risks heighten; its access to onshore bank funds weakens; or if the company experiences a material decline in operating cash flow due to a decline in property sales or construction cash flow.

An upgrade of Greenland Holding's ratings is unlikely, given that they are on review for downgrade. However, Moody's could confirm the ratings if Greenland Holding improves its access to funding and maintains stable operating cash flow and adequate liquidity while lowering its debt to more sustainable levels.

Moody's could downgrade Greenland Hong Kong's ratings if Greenland Holding is downgraded; or if Greenland Hong Kong's standalone credit quality weakens, as reflected in a material decline in contracted sales, operating cash flow, financial metrics or liquidity. Any evidence of a reduction in ownership by or a weakening in support from Greenland Holding will also pressure Greenland Hong Kong's ratings.

Greenland Hong Kong's ratings are unlikely to be upgraded, given that they are on review for downgrade. However, Moody's could confirm Greenland Hong Kong's ratings if Greenland Holding's ratings are confirmed and Greenland Hong Kong maintains stable sales and operating cash flow, solid financial metrics and adequate liquidity.

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.

Headquartered in Shanghai, Greenland Holding Group Company Limited is a state-controlled enterprise that primarily focuses on the real estate sector, with businesses in construction, finance and auto dealerships as well. The Shanghai SASAC indirectly owns 46.37% of Greenland Holding as of June 2021.

Greenland Hong Kong Holdings Limited is principally engaged in the development of large-scale, high-quality residential communities, city-center integrated projects, and travel and leisure projects that target the middle-to-high-end customer segment. Greenland Holding owned 59.11% of Greenland Hong Kong as of 30 June 2021.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

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.

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

No Related Data.
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