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Rating Action:

Moody's revises outlook on Beijing Capital Land and its subsidiaries to stable from negative

 The document has been translated in other languages

07 Mar 2018

Hong Kong, March 07, 2018 -- Moody's Investors Service has revised to stable from negative its outlook on Beijing Capital Land Limited's (BJCL) Ba3 corporate family rating.

At the same time, Moody's has revised to stable from negative the outlook on the following ratings of BJCL's subsidiaries:

1. The B1 corporate family rating of International Financial Center Property Ltd. (IFC)

2. The B1 backed senior unsecured debt rating on the bonds issued by Central Plaza Development Ltd. (CPD)

3. The provisional (P)B1 backed senior unsecured rating on the medium-term note (MTN) program of CPD

At the same time, Moody's has affirmed all the above ratings.

Both the bonds and MTN program of CPD are guaranteed by IFC.

The bonds and MTN program are also supported by Deeds of Equity Interest Purchase Undertaking and Keepwell Deeds between BJCL, CPD, IFC and the bond trustee. Both CPD and IFC are wholly-owned subsidiaries of BJCL.

Additionally, Beijing Capital Group Co., Ltd. (BCG, Baa3 stable), the parent of BJCL, provides Letters of Support in favor of BJCL and IFC in connection with both the bonds and the MTN program.

RATINGS RATIONALE

"The change in BJCL's ratings outlook to stable from negative reflects our expectation that the company's credit metrics will improve on a sustained basis, supported by improved gross profit margins, expected revenue growth as well as prudent debt management over the next 12-18 months," says Kaven Tsang, a Moody's Vice President and Senior Credit Officer, and also the International Lead Analyst for BJCL.

The company's gross profit margin increased significantly to 26.7% in 2017 from 12%-13% in 2016 and 2015. The improvement was mainly attributable to the delivery of high-margin projects in Beijing, Shanghai and Tianjin, which accounted for around 75% of revenue in 2017.

Moody's expects that BJCL will maintain a gross profit margin of around 25% over the next 12-18 months, supported by the company's continued focus on first-tier and major second-tier cities. Around 67% of its total contracted sales in 2017 were derived from top-tier cities such as Beijing, Tianjin and Shanghai.

Moody's also estimates that the company will register revenue growth of around 20% year-on-year over the next 12-18 months, supported by its strong contracted sales growth over the last 1-2 years. At year-end 2017, the company indicated that it had already locked in future revenue of around RMB30.2 billion.

Moody's expects BJCL's debt will increase by around 5%-10% over the next 12-18 months to replenish its land bank and achieve its RMB75-80 billion sales target for 2018 (including contributions from joint ventures and associates). However, this rise in debt will be more than offset by the expected strong earnings growth over the same period. BJCL may also raise equity to reduce its reliance on debt funding.

Consequently, Moody's expects BJCL's interest coverage — as measured by adjusted EBIT/interest — to further improve to 2.0x-2.2x over the next 12-18 months from 1.9x for 2017. Its debt leverage — as measured by adjusted revenue/debt — will likely rise to around 30%-35% from 27% at end-2017. Such metrics will support the company's standalone credit strength, which is equivalent to a B2 rating.

The two-notch parental uplift continues to reflect Moody's expectation that BCG will provide support to BJCL in a distressed situation, given its strategic and economic importance as the group's core property arm.

Additionally, BCG has managerial control over the company and a track record of financially supporting BJCL. Such support includes the provision of guarantees to cover the repayment of BJCL's onshore debt, and a letter of support covering its offshore bond.

Moody's would consider upgrading BJCL's ratings if the company: (1) demonstrates stable sales growth and grows its scale; (2) maintains its prudent approach to land acquisitions; and (3) maintains EBIT/interest coverage in excess of 2.5x.

On the other hand, BJCL's ratings could come under downward pressure if: (1) it generates weak contracted sales; (2) its profit margin decline materially; (3) its liquidity position becomes impaired; and/or (4) its financial metrics weaken, with EBIT/interest coverage falling below 1.25x-1.5x on a sustained basis.

Any evidence of weakening support from BCG will also pressure BJCL's rating.

Moody's also revised the outlook on IFC's rating to stable from negative, following the change in outlook on BJCL's rating to stable from negative.

IFC's B1 corporate family rating reflects its standalone credit strength and a one-notch rating uplift, based on expected financial and operating support from its parent, BJCL.

IFC's standalone credit strength reflects its small-scale operation, thin capital base, and weak projected EBIT/interest of around 1.0x-2.0x.

Moody's assessment of a high level of support from BJCL is based on its: (1) 100% ownership of IFC; and (2) track record of providing financial support to IFC.

Upward rating pressure could emerge if (1) IFC improves its scale and geographic diversity to reduce the volatility in its sales and earnings; (2) it improves its financial profile, with EBIT/interest exceeding 3.0x; and (3) BJCL's rating is upgraded.

A downgrade of BJCL's rating will result in a similar downgrade of IFC's rating.

In addition, any evidence of weakening support from BJCL, or a reduction in the strategic importance of IFC to BJCL, could be negative for the company's rating.

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.

Incorporated in China, Beijing Capital Land Limited (BJCL) is a residential property developer. BJCL was founded in 2002 as the major property arm of its parent, Beijing Capital Group Co., Ltd. (BCG). BJCL listed on the Hong Kong Stock Exchange in 2003. BCG is BJCL's largest shareholder, with an equity interest of 54.5%. The Government of Singapore Investment Corporation is also a major shareholder, with a 5.45% stake.

Incorporated in the British Virgin Islands in 2000, International Financial Center Property Ltd. (IFC) is a fully owned subsidiary of BJCL. IFC is an overseas investment holding company that owns property development projects in China.

The Local Market analyst for this rating is Cindy Yang, +86 (10) 6319-6570.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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
VP - Senior Credit Officer
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

Gary Lau
MD - Corporate Finance
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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