Hong Kong, September 05, 2019 -- Moody's Investors Service has revised to positive from stable the rating
outlook of Logan Property Holdings Company Limited.
At the same time, Moody's has affirmed Logan Property's Ba3 corporate
family rating and B1 senior unsecured debt rating.
RATINGS RATIONALE
"The change in outlook to positive reflects our expectation that Logan's
credit metrics will improve over the next 12-18 months, driven
by strong revenue growth and good profit margins," says Cedric Lai,
a Moody's Vice President and Senior Analyst.
"We also expect Logan's strong brand and leading market position
in the Guangdong-Hong Kong-Macao Bay Area (Greater Bay Area)
will enable the company to deliver strong contracted sales growth over
the next 12-18 months," adds Lai.
Logan's contracted sales grew 25% year-on-year to
RMB54.6 billion in the first seven months of 2019, after
recording robust 65% year-on-year growth to RMB71.8
billion for the full year 2018.
Moody's believes Logan's sizable salable resources, strong sales
execution and solid housing demand in the company's core markets in the
Greater Bay Area will enable the company to further grow its contracted
sales to RMB85-RMB90 billion in 2019.
Such strong contracted sales will help fund the company's business expansion
and will support revenue growth and liquidity over the next 12-18
months.
Moody's expects Logan will continue to grow its presence in the
Greater Bay Area over the next few years. At the end of June 2019,
around 60% of its total land bank by gross floor area was located
in the Greater Bay Area, providing the company with sufficient salable
resources to maintain its strong market position in the region.
At the same time, the company has demonstrated discipline in its
land acquisitions and business expansion.
Logan has kept its share of annual land acquisitions below 50%
of contracted sales over the past 2-3 years. Moody's expects
the company will maintain this disciplined approach to expansion,
which will in turn keep debt growth at a moderate level.
Moody's further estimates that the company's gross profit margin will
remain at 31%-32% over the coming 12-18 months
because of its low-cost land bank. Its low land costs also
provide the company with pricing flexibility should China's property market
become more challenging over the next 6-12 months.
Consequently, Moody's expects Logan's debt leverage -- as measured
by revenue/adjusted debt - will improve to 75%-80%
over the next 12-18 months from 75% in the 12 months ended
June 2019. Similarly, Moody's expects adjusted EBIT/interest
will remain strong at 4.0x-4.5x from 4.6x
over the same period.
Logan's Ba3 corporate family rating continues to reflect its (1) proven
track record of developing mass-market residential properties in
the Greater Bay Area; and (2) position as a leading developer in
Shantou and Nanning. The company's focus on mass-market
products supports sales growth and generates good presales cash flow,
lowering its reliance on debt funding.
On the other hand, the rating is constrained by Logan's high geographic
concentration in southern China.
Logan's liquidity position is good. The company's cash balance
of RMB37.8 billion at the end of June 2019 covered 173%
of its short-term debt. Such cash holdings, together
with the company's operating cash flow, should be sufficient to
cover its short-term debt and estimated committed land payments
over the next 12-18 months.
With respect to governance risks, Moody's has considered the risk
associated with the concentration of the company's ownership in its controlling
shareholders, Mr. Kei Hoi Pang, who held a 62.05%
stake in the company at 30 June 2019.
The financial risk associated with this ownership concentration is partly
mitigated by (1) the presence of three independent non-executive
directors on a board of seven directors, while two independent non-executive
directors chaired the audit and remuneration committees, and (2)
the application of the Listing Rules of the Hong Kong Stock Exchange and
the Securities and Futures Ordinance in Hong Kong.
The B1 senior unsecured debt rating is one notch lower than the corporate
family rating due to structural subordination risk.
This subordination risk refers to the fact that the majority of Logan's
claims are at its 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. Consequently, the expected recovery rate for
claims at the holding company will be lower.
Upward ratings pressure could emerge if Logan: (1) establishes a
track record of stable contracted sales growth while maintaining good
liquidity and profit margins; (2) grows in scale and improves geographic
diversification; and (3) improves debt leverage. Credit metrics
indicative of upward rating pressure include homebuilding EBIT/interest
coverage in excess of 3.5x-4.0x and revenue/adjusted
debt in excess of 80%-85% on a sustained basis.
On the other hand, Moody's could change the outlook to stable if
the company's performance and credit metrics are unlikely to fall within
the parameters required for a ratings upgrade over the next 12-18
months.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018. Please see the
Rating Methodologies page on www.moodys.com for a copy of
this methodology.
Established in 1996, Logan Property Holdings Company Limited is
a property developer based in Shenzhen. The company's principal
focus is on residential projects in Shenzhen, Shantou, Nanning
and Huizhou.
The company listed on the Hong Kong Stock Exchange in December 2013.
At the end of June 2019, the company's land bank totaled 35.9
million square meters in gross floor area in different cities in China,
including Shenzhen, Shantou, Nanning, Hong Kong and
other cities in the Greater Bay Area, and in Singapore.
REGULATORY DISCLOSURES
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
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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
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tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
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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.
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Regulatory disclosures contained in this press release apply to the credit
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Please see www.moodys.com for any updates on changes to
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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.
Cedric Lai
Vice President - Senior 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
