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
