(The following statement was released by the rating agency)
HONG KONG/SHANGHAI, June 14 (Fitch) Fitch Ratings has downgraded
homebuilder Greenland Holding Group Company Limited's
Foreign- and Local-Currency Issuer Default Ratings (IDR) to 'BB'
with a Negative Outlook. Fitch has also downgraded Greenland's
rating and the ratings of all outstanding bonds to 'BB'.
The downgrade of the IDR follows the downgrade of Greenland's
to 'BB-' from 'BB' and the incorporation of a one-notch uplift
moderate linkage with its parent, the State-owned Assets
Administration Commission (SASAC) of Shanghai Municipality, in
line with Fitch's
Parent and Subsidiary Linkage criteria.
The downgrade of the standalone rating is driven by Greenland's
leverage of above 60% as the company remained aggressive in
expanding its land
bank in 2016. Leverage, as measured by net debt-to-adjusted
reached 67% by end-2016. The Negative Outlook reflects our view
cash collection of its pre-sold commercial properties in 2017 is
likely be below
our previous understanding, and this may keep leverage sustained
above 65% - the
level at which we may consider further negative rating action.
KEY RATING DRIVERS
Hard to Deleverage: Fitch's expectation that leverage may exceed
65% in 2017 and
2018 is due to construction expenditure likely to remain high
even as the
company slowed down its attributable land acquisition to about
CNY8 billion in
5M17. Greenland has been reducing the proportion of commercial
which came down to 36% in 2016 from 49% in 2015. The
cash-collection ratio also
improved to 79% from 59% in 2015, though it is still behind the
of 90% in 2016. The low cash-collection rate is a result of its
high exposure to
sales of commercial property development that has a slower sales
than for residential property sales.
Large Construction Expenditure Commitment: Fitch believes
construction pace will continue to pressure leverage.
construction start gross floor area (GFA) totalled 19.3 million
(sqm) in 2016, and this outpaced its land-acquisition GFA of
14.9 million sqm.
The 2016 completed GFA of 22.7 million sqm was faster than both
starts and new land added. Greenland's aggressive pace of
in completed properties available for sale growing significantly
in 2016 to
CNY93 billion from CNY49 billion in 2015. The build-up of unsold
properties can be a cash drain, and a persistent rising trend of
completed properties may also reflect uncertainties of its
Contracted Sales Growth to Slow: Fitch expects Greenland's
contracted sales to
be sustained at around CNY280 billion in 2017, slowing down in
2H17 as the
Chinese authorities continue to implement increasingly stricter
measures to curb
property prices and restrict residential property transactions.
rose by 11% to CNY255 billion in 2016. This trend had maintained
earlier in 2017, with contracted sales growing by 17.9% yoy in
Non-Property Adds to Leverage Pressure: Fitch believes that
non-property businesses are still immature and will need to be
funded with cash
flow generated from the property business. Greenland has made
investments in the financial institutions (FI), consumer goods
infrastructure industries. All these have contributed to the
Benefits of Large Scale: Greenland is one of the top property
China as measured by contracted sales. Its property-development
business is well
diversified in over 40 cities in China and overseas. The company
sustain contracted sales of over CNY200 billion in the next few
One-Notch Parental Support: Greenland has moderately strong
linkages with the
Shanghai government. It will continue to be one of the major
Shanghai's tax revenue among Shanghai SASAC-owned enterprises,
and remain the
largest Shanghai-based property company. Fitch believes the
which owns 46% of Greenland, will continue to be the biggest
exert influence on Greenland's ability to acquire quality sites
Greenland's rating is supported by its business profile -
including scale as
measured by contracted sales and EBITDA, and its market
position. However, its
rating is constrained by higher leverage than most of the 'BB'
and relatively low contracted sales efficiencies (measured by
sales/gross debt) - due to its higher exposure to the commercial
segments. Greenland's peers, like China Evergrande Group
(B+/Stable) and Sunac
China Holdings Limited (BB/Negative), are similarly aggressive
their scale, and are among the 10 largest Chinese homebuilders.
Greenland's leverage is as high as that of Evergrande, but
Greenland has a large
level of uncollected sales to mitigate its high leverage.
Greenland, as a
state-owned enterprise, has a stronger position in acquiring
land at low costs,
especially for new city districts that local governments are
keen to develop.
This enhances Greenland's business profile over that of
Evergrande and Sunac.
Fitch's key assumptions within our rating case for the issuer
- Contracted sales to increase by 13% in 2017 and slow to 5% in
- Sales of commercial property to form 40% of total sales, and
to make up the remainder in 2017-2019
- Land premium of around CNY75 billion-90 billion in 2017-2019.
Positive: Future Developments That May, Individually or
Collectively, Lead to
Negative Rating Action on the Ratings Include:
The Outlook on the standalone ratings may be revised to Stable
if the negative
guidelines are not met in the next 12 months.
Future Developments That May, Individually or Collectively, Lead
Net debt/adjusted inventory sustained above 65% (Fitch estimate
for 2016: 67%)
Property EBITDA margin sustained below 15% (Fitch estimate for
Contracted sales/total debt sustained below 0.8x (Fitch estimate
for 2016: 0.9x)
Evidence of weakening support from parent.
Greenland had cash of CNY60 billion at end-2016, which is not
cover its short-term debt of CNY96 billion. However, the company
billion of available bank facilities and the capability to raise
multiple channels domestically.
FULL LIST OF RATING ACTIONS
Greenland Holding Group Company Limited
- Long-Term Foreign-Currency IDR downgraded to 'BB'/Negative
- Long-Term Local-Currency IDR downgraded to 'BB'/Negative from
- Senior unsecured rating downgraded to 'BB' from 'BB+'
- USD3 billion medium-term note programme downgraded to 'BB'
- USD2 billion medium-term note programme downgraded to 'BB'
Issued by Greenland Hong Kong Holdings Limited with Keepwell
Holding Group Company Limited
- USD450 million 3.875% senior notes due 2019 downgraded to 'BB'
- USD500 million 4.375% senior notes due 2017 downgraded to 'BB'
- CNY1.5 billion 5.5% senior notes due 2018 downgraded to 'BB'
Issued by Greenland Global Investment Limited and Guaranteed by
Holding Group Company Limited
- USD500 million 3.5% senior notes due 2017 downgraded to 'BB'
- USD400 million 3.75% senior notes due 2019 downgraded to 'BB'
- USD300 million 3.5% senior notes due 2019 downgraded to 'BB'
- USD600 million 5.875% senior notes due 2024 downgraded to 'BB'
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Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017)
Non-Financial Corporates Hybrids Treatment and Notching Criteria
(pub. 27 Apr
Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016)
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