Hong Kong, May 12, 2022 -- Moody's Investors Service has downgraded the corporate family rating (CFR) of Greenland Holding Group Company Limited (Greenland Holding) to B2 from Ba3.
Moody's has also downgraded the following ratings:
• The backed senior unsecured rating of Greenland Global Investment Limited's (Greenland Global) medium-term note (MTN) program to (P)B3 from (P)B1;
• The backed senior unsecured rating of Greenland Global Investment Limited's senior unsecured notes to B3 from B1;
• The CFR of Greenland Hong Kong Holdings Limited (Greenland Hong Kong) to B2 from B1;
• The backed senior unsecured rating of Greenland Hong Kong Holdings Limited's MTN program to (P)B3 from (P)B2; and
• The backed senior unsecured rating of Greenland Hong Kong Holdings Limited's USD notes to B3 from B2.
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 all ratings on review for further downgrade. The previous outlooks were negative.
"The downgrade reflects our expectation that Greenland Holding's refinancing risk will increase over the next 6-12 months, driven by its declining contracted sales and operating cash flow, as well as sizable bond maturities," says Daniel Zhou, a Moody's Analyst.
"The review for downgrade reflects the uncertainties over the company's ability to raise new funding, through new borrowing or asset disposals, to address its refinancing needs over the next 6-12 months," says Daniel Zhou, a Moody's Analyst.
RATINGS RATIONALE
Moody's has changed its assessment of Greenland Holding's liquidity to weak from adequate, in view of the company's material decline in sales, reduced cash balance, as well as its weakened ability to raise new debt to address its sizable refinancing needs.
Moody's forecasts Greenland Holding's contracted sales will fall around 30% over the next 6-12 months, due to difficult operating and funding conditions. Declining contracted sales will strain the company's cash flow generation and in turn, its liquidity.
Greenland Holding's sales decreased 56% to RMB30.8 billion in the first quarter of 2022, following a similar 57% reduction in the fourth quarter of 2021.
Greenland Holding's weakening liquidity is also reflected in the reduction in its total cash to RMB65.7 billion as of the end of March 2022, from RMB103.5 billion as of the end of 2020. This is primarily because the company repaid maturing bonds and loans with internal resources amid difficult funding conditions. Accordingly, Moody's estimates the company's total cash/short-term debt declined to 68% from 94% over the same period.
Meanwhile, Moody's estimates that a significant portion of the company's cash resides at the subsidiary or project levels under the property and construction segments, which could not be used to repay its debt at the holding company level.
Greenland Holding will have high refinancing needs over the next 12-18 months. In particular, it will have RMB29 billion-equivalent bonds, including USD2.8 billion of offshore bonds, maturing or becoming puttable by September 2023.
Greenland Holding's state-owned background backed several fundraising activities over the past few months to support its debt repayment. However, the company's weakened access to the capital market will lead to depletion of its internal cash to address refinancing needs, in the absence of continuation of such funding enhancement. This will further strain the company's liquidity over the next 6-12 months.
Greenland Holding may use the proceeds from asset disposals to repay its maturing debt. However, the timing of its asset sales is uncertain, given the weak market sentiment and tight funding conditions in China.
Greenland Holding's B2 CFR continues to reflect the company's large scale and good geographic and product diversification in China.
The B2 CFR rating is constrained by the company's increasing refinancing risk, modest profitability and credit metrics, and high debt leverage.
The downgrade of Greenland Hong Kong's CFR to B2 reflects rising contagion risk due to the increasing liquidity pressure on its parent, Greenland Holding, given the two entities' close linkage and sharing of brand name. While Greenland Hong Kong's liquidity remains adequate, Moody's expects its funding access to weaken, which will squeeze the company's liquidity buffer over the next 6-12 months.
Greenland Hong Kong's B2 CFR reflects its well-located land banks and adequate liquidity.
However, the rating is constrained by Greenland Hong Kong's rising contagion risk due to increasing liquidity pressure on its parent, volatile sales performance given its moderate operating scale, and execution risks amid challenging business conditions.
The senior unsecured ratings on 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.
With respect to environmental, social and governance (ESG) factors, Greenland Holding's CFR takes into account (1) its state-owned enterprise background; (2) its disclosure of significant related-party transactions with its parent company, Greenland Holdings Corporation Limited, as required by the relevant codes for companies listed on the Shanghai Stock Exchange; and (3) the presence of a diversified board of directors with four independent non-executive directors, and four special committees to supervise the company's operations.
Greenland Hong Kong's CFR factors in the substantial state ownership in its largest shareholder, Greenland Holding, and 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 is listed on the Hong Kong Stock Exchange and is governed by the Listing Rules of the Hong Kong Stock Exchange and the Securities and Futures Ordinance in Hong Kong SAR, China on related-party transactions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's review will assess (1) Greenland Holding's refinancing risks, particularly its ability to address its maturing debt (including puttable bonds) in a timely manner; and (2) both Greenland Holding's and Greenland Hong Kong's sales performance, operating cash flow generation, access to funding and liquidity.
Greenland Holding's ratings are unlikely to be upgraded, given that they are on review for downgrade.
However, Moody's could confirm the ratings if Greenland Holding improves its operating cash flow, liquidity and access to funding.
On the other hand, Moody's could downgrade the ratings if Greenland Holding's refinancing risks heighten, or its liquidity or access to funding deteriorates further.
Greenland Hong Kong's ratings are unlikely to be upgraded, given that they are on review for downgrade.
However, Moody's could confirm the ratings if Greenland Holding's ratings are confirmed and Greenland Hong Kong maintains steady sales, solid financial metrics and adequate liquidity.
Moody's could downgrade Greenland Hong Kong's ratings if Greenland Holding is downgraded; or if there is a material decline in Greenland Hong Kong's contracted sales, operating cash flow, financial metrics or 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. 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.
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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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
