Hong Kong, September 18, 2020 -- Moody's Investors Service has assigned Baa3 issuer rating to Country
Garden Holdings Company Limited, and has withdrawn its Ba1 corporate
family rating.
At the same time, Moody's has upgraded the company's
senior unsecured bond rating to Baa3 from Ba2.
The outlook is revised to stable from positive.
"The Baa3 issuer rating reflects our expectation that Country Garden's
will sustain its leading market position and track record in property
development while maintaining its prudent financial management,"
says Celine Yang, a Moody's Assistant Vice President and Analyst.
"The upgrade of Country Garden's senior unsecured debt ratings reflects
its strengthened credit profile and improved credit diversification that
mitigates structural subordination risk, with the latter driven
by (1) its enlarged operating scale, (2) the improved geographic
distribution of its property development projects, and (3) the increased
number of operating subsidiaries that generate cash flow through diverse
business cycles," adds Yang.
RATINGS RATIONALE
Country Garden's Baa3 issuer rating reflects the company's strong
brand name, good geographic diversification, strong liquidity
and solid track record of resilient operations through the cycles.
The company has a balanced land bank across major regions in China (A1
stable), which can support its business growth over the next three
to four years.
Country Garden focuses on developing residential projects, which
benefit from solid property demand from the ongoing urbanization in the
key regions in which it operates.
Country Garden has demonstrated strong sales execution capability,
achieving stable and resilient sales even during previous down cycles.
Country Garden's attributable contracted sales grew by 3%
year-on-year to RMB382 billion for the first eight months
in 2020 despite the negative impact from the coronavirus outbreak.
However, Country Garden's rating is constrained by its low profit
margins and large exposure to lower-tier cities, where demand
can be volatile.
Moody's expects Country Garden's leverage, as measured by revenue/adjusted
debt, will remain strong at 110%-115% in the
coming 12-18 months, from 114% for the 12 months ended
June 2020. This improvement will be driven by growth in revenue
thanks to the company's strong contracted sales over the past two to three
years, as well as its disciplined approach to pursuing growth and
controlling debt increase.
Meanwhile, Moody's forecasts Country Garden's EBIT/interest
will improve slightly to 4.5x-4.7x from 4.4x
over the same period, driven by higher revenue recognition and declining
interest costs.
Country Garden's liquidity is excellent. Moody's expects the company's
cash holdings along with its operating cash flow can cover its short-term
debt and committed land payments over the next 12-18 months.
The company's cash to short-term debt ratio remained strong
at 1.9x as of 30 June 2020, compared to 2.3x as of
31 December 2019.
In terms of environmental, social and governance (ESG) factors,
Moody's has considered the concentrated ownership by Country Garden's
key shareholder, Ms. YANG Huiyan, who held a total
57.6% stake in the company at 30 June 2020. Such
risk is partly mitigated by the presence of five independent non-executive
directors out of a total 13-member board of directors, and
the presence of other internal governance structures and standards,
as required under the Corporate Governance Code for companies listed on
the Hong Kong Stock Exchange. In addition, its related party
transactions have been low relative to its sales around 3%,
and dividend payouts have been moderate below 40% over the last
five years.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook reflects Country Garden's good liquidity, underpinned
by its strong operating cash flow and good access to both the onshore
and offshore capital markets.
Country Garden's ratings could be upgraded if it maintains its strong
operating profile, disciplined liquidity and financial management,
and demonstrates the sustainability of its business model with a high
level of business and financial stability.
Credit metrics indicative of an upgrade include (1) revenue/adjusted debt
above 120%-125%, (2) EBIT/interest over 6.5x-7.0x,
and (3) strong liquidity, with its cash/short-term debt above
1.5x on a sustained basis.
However, the ratings could be downgraded if (1) sales deteriorate
significantly; (2) its liquidity weakens; or (3) it undertakes
aggressive debt-funded expansion that weakens its credit metrics,
such that revenue/adjusted debt drops below 95%-100%,
EBIT/interest below 4.5x- 5x.
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.
Country Garden Holdings Company Limited, founded in 1992 and listed
on the Hong Kong Stock Exchange, is a leading Chinese integrated
property developer. As of end of June 2020, the company's
land bank by attributable gross floor area (GFA) in China, including
that of joint ventures (JVs) and associates, was 172 million square
meters (sqm). Its revenue was RMB185 billion ($26 billion)
in H1 2020.
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analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions in the disclosure form. Moody's Rating Symbols and
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YuYing (Celine) Yang
Asst Vice President - 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
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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
