Hong Kong, April 03, 2019 -- Moody's Investors Service ("Moody's") has upgraded Sunac China Holdings
Limited's corporate family rating (CFR) to Ba3 from B1.
Moody's has also upgraded Sunac's senior unsecured debt ratings
to B1 from B2.
The outlook is stable.
RATINGS RATIONALE
"The ratings upgrade reflects our expectation that Sunac will continue
to improve its leverage in the next one to two years, driven in
part by its strong sales execution and cash collection from property sales,"
says Danny Chan, a Moody's Assistant Vice President and Analyst.
"The upgrade also reflects Sunac's strengthened financial
discipline, which will help control the company's capital
spending for business growth," says Chan who is also Moody's
Lead Analyst for Sunac.
Moody's expects that Sunac's debt leverage — as measured by revenue/adjusted
debt (including adjustments for its shares in joint ventures and associates)
— will improve to 75%-80% over the next 12-18
months from around 60% in 2018 and around 36% in 2017,
supported by an expected increase in revenue recognition from strong contracted
sales and controlled spending on land purchases and non-property
investments.
Meanwhile, its interest coverage — as measured by adjusted
EBIT/interest — will likely improve to 3.0x-3.2x
over the next 12-18 months from around 2.6x in 2018.
These credit metrics support its Ba3 corporate family rating.
Sunac continued to report solid contracted sales growth in 2018,
with a 27% year-on-year increase during the year,
following 140% and 121% growth in 2017 and 2016.
Moody's expects the company's contracted sales will remain
solid but slow down in the next 1-2 years from a high base.
Moody's believes its established brand name, quality products
and sizable saleable resources of approximately RMB783 billion for 2019
will support its solid but moderating sales growth.
The company's overall profitability has improved, as evidenced
by an increase in its reported gross profit margins to 25.0%
in 2018 from 20.7% in 2017. The improvement was the
result of increased property prices in its major markets and the delivery
of more profitable projects in the past two to three years.
In addition, the company has shown a more disciplined approach to
land acquisitions over the past 12 months. Moody's expects
the company will remain cautious in its land acquisitions, keeping
its attributable spending on land below 25%-30% of
its attributable contracted sales over the next 12-18 months compared
to an estimated annual average of 45%-70% during
2016-2017.
Sunac's Ba3 CFR reflects the company's strong sales execution, its
leading brand and market position in China's Tier 1 and Tier 2 cities,
as well as the good quality of its land bank. The rating also considers
Sunac's good liquidity profile, driven by its rapid asset turnover
business model.
Sunac's strong liquidity profile is evidenced by its cash balance of RMB120
billion at the end of 2018, which covered 131% of its short-term
debt.
However, the CFR is constrained by the modest credit metrics associated
with Sunac's business expansion. In addition, the adoption
of a rapid asset turnover business model has reduced the stability of
its profitability and interest coverage. Nevertheless, Moody's
expects that the company's credit metrics will improve over the next 12-18
months.
The stable outlook on Sunac reflects Moody's expectation that the company
will further improve its profitability, remain prudent in its financial
management and control its investments in non-property businesses.
Upward ratings pressure could emerge if Sunac: (1) demonstrates
its ability to exercise restraint in its non-core business investments;
(2) maintains its solid liquidity position; and (3) improves its
credit metrics, such that adjusted revenue/debt rises above 95%-100%
and adjusted EBIT/interest rises above 3.5x-4.0x
on a sustained basis.
However, the ratings could be downgraded in case of: (1) a
material contracted sales decline; (2) a weakening liquidity position;
(3) substantial investments in its non-property development businesses;
or (4) weakening credit metrics, such that adjusted revenue/debt
falls below 60%-70% and adjusted EBIT/interest drops
below 2.5x-3.0x on a sustained basis.
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.
Listed on the Hong Kong Stock Exchange on 7 October 2010, Sunac
China Holdings Limited is an integrated residential and commercial property
developer with projects in China's main economic regions. The company
develops a diverse range of properties, including high-rise
and mid-rise residences, detached villas, town houses,
retail properties, offices and car parks.
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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
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the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
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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
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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.
Danny Chan
AVP - 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
