Hong Kong, May 30, 2022 -- Moody's Investors Service has downgraded the corporate family rating (CFR) of Greenland Holding Group Company Limited to Caa2 from B2.
At the same time, Moody's has downgraded the following ratings:
• The backed senior unsecured rating of Greenland Global Investment Limited's medium-term note (MTN) program to (P)Caa3 from (P)B3;
• The backed senior unsecured rating of Greenland Global Investment Limited's senior unsecured notes to Caa3 from B3;
• The CFR of Greenland Hong Kong Holdings Limited to B3 from B2;
• The backed senior unsecured rating of Greenland Hong Kong Holdings Limited's MTN program to (P)Caa1 from (P)B3; and
• The backed senior unsecured rating of Greenland Hong Kong Holdings Limited's USD notes to Caa1 from B3.
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.
Moody's has also changed all the rating outlooks to negative from ratings under review. This concludes its review for downgrade initiated on 12 May 2022.
"The downgrade reflects Greenland Holding's elevated liquidity risks, following its consent solicitation to extend the maturity of its offshore bond due in June 2022," says Daniel Zhou, a Moody's Analyst.
"The negative outlook reflects the uncertainty over the company's ability to address all its short-term debt maturities amid challenging operating and funding conditions," adds Zhou.
RATINGS RATIONALE
On 27 May 2022, Greenland Holding announced a consent solicitation to extend the maturity of the company's USD senior notes due in June 2022, with an outstanding principal amount of USD488 million.
The proposed maturity extension indicates Greenland Holding's escalating liquidity pressure due to difficult operating and funding conditions in China's property market and its sizable debt maturities.
Greenland Holding will have RMB25 billion-equivalent bonds, including USD2.3 billion of offshore bonds, maturing or becoming puttable by June 2023.
While the company had RMB65.7 billion in cash as of the end of March 2022, Moody's estimates that in addition to the restricted cash, the company would need to keep a significant portion of the cash at operating project levels for the completion of presold projects. This arrangement limits the company's flexibility to mobilize cash to repay the debt at the holding company level.
In addition, the business disruption caused by government measures to control COVID-19 infections over the past 2-3 months have restrained the company's sales and funding arrangement. The company's contracted sales decreased 56% year-on-year to RMB30.8 billion in the first quarter of 2022, following a similar 57% reduction in the fourth quarter of 2021. Moody's forecasts Greenland Holding's contracted sales will fall notably over the next 6-12 months, due to difficult operating conditions, which will further stress its liquidity profile.
The downgrade of Greenland Hong Kong's CFR to B3 reflects the company's high contagion risks and associated constraints from its parent Greenland Holding, given the two entities' close linkage and sharing of brand name.
However, Greenland Hong Kong's liquidity remains adequate, as Moody's expects the company's internal cash resources to be sufficient to cover its maturing debt over the next 12-18 months, particularly its USD150 million offshore bond maturing in June 2022. Nevertheless, Greenland Holding's credit distress will weaken homebuyer confidence, in turn stressing Greenland Hong Kong's sales and restricting its funding access.
The senior unsecured ratings for Greenland Holding's guaranteed notes and Greenland Hong Kong's notes are one notch lower than their respective CFRs 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 level in a bankruptcy scenario. In addition, the holding companies lack significant mitigating factors for structural subordination. As a result of these factors, the expected recovery rate for claims at the holding companies will be lower.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Greenland Holding's ratings are unlikely to be upgraded, given the negative outlook.
However, positive rating momentum could emerge if Greenland Holding improves its funding access and materially reduces its refinancing risks.
On the other hand, Moody's could downgrade the ratings if the company's liquidity and refinancing risks further escalate, or if the recovery prospects for its creditors deteriorate.
Greenland Hong Kong's ratings are unlikely to be upgraded, given the negative outlook.
However, positive rating momentum could emerge if Greenland Hong Kong improves its sales, maintain solid financial metrics and adequate liquidity, and the contagion risks from Greenland Holding reduces, as reflected by a meaningful improvement in Greenland Holding's credit profile.
Moody's could downgrade Greenland Hong Kong's ratings if Greenland Holding is downgraded; or there is a material worsening in Greenland Hong Kong's contracted sales, operating cash flow, financial metrics or liquidity.
Any indication of Greenland Hong Kong providing funding support to Greenland Holding could also be credit negative to Greenland Hong Kong.
The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018 and available at https://ratings.moodys.com/api/rmc-documents/66220. Alternatively, please see the Rating Methodologies page on https://ratings.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. Shanghai State-owned Assets Supervision and Administration Commission indirectly owns 46.37% of Greenland Holding as of 31 March 2022.
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 31 December 2021.
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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.
Yiwei Daniel Zhou
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
