Reuters logo
Fitch Rates Country Garden's USD Senior Notes Final 'BB+'
September 30, 2016 / 8:31 AM / in a year

Fitch Rates Country Garden's USD Senior Notes Final 'BB+'

(The following statement was released by the rating agency) HONG KONG, September 30 (Fitch) Fitch Ratings has assigned Country Garden Holdings Co. Ltd.'s (BB+/Stable) USD650m 4.75% senior notes due 2023 a final rating 'BB+' . The notes are rated at the same level as Country Garden's senior unsecured rating because they constitute direct and senior unsecured obligations of the company. The assignment of the final rating follows the receipt of documents conforming to information already received and the final rating is in line with the expected rating assigned on 19 September 2016. Country Garden's ratings are supported by cash inflow from annual contracted sales of over CNY100bn, strong financial flexibility with low interest cost, and a track record of strong execution. Moving into the higher-tier cities is a positive development in Country Garden's progression towards becoming a nationwide homebuilder. However, this process may take another one to two years to reach fruition if the company continues on its current trajectory. KEY RATING DRIVERS Ongoing Land Bank Adjustment: Fitch believes Country Garden will continue to reposition its land bank in the next 12 to 24 months. The repositioning in 2015 was to boost the contribution from products targeted at Tier 1 and 2 cities; 52% of the CNY140bn contracted sales came from products targeting these cities. Out of the CNY56bn of land acquired in 2015, 67% is in Tier 1 and 2 cities and 75% is aimed at residents of these cities. Aggressive Expansion Pressures Leverage: Fitch expects net debt to rise to CNY70bn-95bn in 2016 with the expansion of the land bank. The total land premium of CNY56bn (CNY43bn on an attributable basis) was far beyond its budget of CNY20bn at the start of 2015. This resulted in leverage (as measured by net debt/adjusted inventory) rising to 40% from 36% in 2014. Higher end-2015 gross debt has also lowered its churn - as measured by contracted sales to total debt - to 1.1x from 2.0x in 2014. This is less of an issue, since the higher available cash of CNY36.2bn at end-2015 (from CNY18.7bn at end-2014) will reduce pressure from higher debt. Gradual Recovery in Margins: Fitch expects the EBITDA margin to improve to 16% in 2016 from 14% in 2015 with recognition of wider-margin contracted sales. The 2015 EBITDA margin was at its historical low, as the company recognised lower-margin products, such as high-rise residential apartments, and recognised average selling price (ASP) fell to CNY6,194 per square metre (sq m) compared with the average recognised ASP of CNY6,611 in 2013 and 2014, as well as average contracted sales ASP of CNY6,658 in 2013-2015. However, Fitch believes EBITDA margin will improve after 2016 due to recognition of the wider-margin contracted sales and continued de-stocking of low-margin products. Successful product repositioning will be a positive development - given the better margins, churn and liquidity of the products targeting at Tier 1 and 2 cities. Financial Control Remains Intact: Fitch believes Country Garden continues to exercise reasonable control of its financial profile even as its land acquisition exceeded its initial budget by a factor of 2.8x. It has demonstrated a financial record of improving funding flexibility and falling interest costs, where the average borrowing cost decreased to 6.2% in 2015 from 7.6% in 2014. Corporate Action Potential: Country Garden has stated its share buyback plans, and has made two acquisitions of auxiliary businesses related to homebuilding. Fitch expects the company will continue to make bolt-on acquisitions to strengthen these auxiliary businesses. KEY ASSUMPTIONS Fitch's key assumptions within our rating case include: - Contracted sales by gross floor area to increase by 5% over 2016-2017; - Average selling price for contracted sales to increase by 8% over 2016-2017; - EBITDA margin improves to 16%-17% in 2016 and to 20%-23% in 2017; - Total land cost around CNY35bn-45bn in 2016-2017; - Net debt including perpetuals to be around CNY70bn-95bn in 2016. RATING SENSITIVITIES Positive: Developments that may, individually or collectively, lead to positive rating action include: - Sustaining trend of neutral or positive cash flow from operating activities - Maintaining the ratio of net debt to adjusted inventory below 35% on a sustained basis (2015: 40.3%) - Maintaining the ratio of contracted sales to gross debt above 1.5x on a sustained basis (2015: 1.12x) Negative: Developments that may individually or collectively, lead to negative rating action include: - EBITDA margin below 20% on a sustained basis (2015: 13.9%) - Maintaining the ratio of net debt to adjusted inventory above 45% on a sustained basis - Maintaining the ratio of contracted sales to gross debt below 1.2x on a sustained basis Contact: Primary Analyst Vanessa Chan Director +852 2263 9559 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Fiona Zhang Associate Director +852 2263 9909 Committee Chairperson Su Aik Lim Senior Director +852 2263 9914 Date of Relevant Rating Committee: 21 March 2016 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage - Effective from 17 August 2015 to 27 September 2016 (pub. 17 Aug 2015) here Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016) here Additional Disclosures Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below