Greenland Hong Kong Holdings Ltd. Ratings Affirmed At #BB-#; Negative Outlook Reflects That On The Parent

Stocks and Financial Services Press Releases Thursday September 28, 2017 17:06
HONG KONG--28 Sep--S&P Global Ratings

HONG KONG (S&P Global Ratings) Sept. 28, 2017--S&P Global Ratings today affirmed its 'BB-' long-term corporate credit rating on Greenland Hong Kong Holdings Ltd. (Greenland HK). The outlook is negative. We also affirmed our 'B+' long-term issue rating on the company's senior unsecured notes. Greenland HK is a China-based property developer and a subsidiary of Greenland Holding Group Co. Ltd. (Greenland Group).

We affirmed the ratings because we expect Greenland HK to continue to improve its leverage and debt servicing capacity on robust sales growth, expanded scale, and better margins following the completion of legacy projects.

The affirmed ratings also reflect our assessment that the company will continue to be a strategically important subsidiary of Greenland Group and that it will receive extraordinary support when needed.

We believe Greenland HK's offshore financing role for the group has weakened, because the group will increasingly engage in direct overseas fund-raising. In 2017, the group has issued several bonds through its other debt-funding platform, Greenland Global Investment Ltd. Also, the group has not provided a keepwell arrangement for Greenland HK's recently issued short-term bond.

In our view, Greenland HK's group relationship is more comparable to that between China Overseas Grand Oceans Group Ltd. (COGO) and its parent China Overseas Land & Investment Ltd.(COLI). COGO is fairly independent in its operations and financing aside from name sharing, common management, and ownership. Overall, we lowered our assessment of Greenland HK's group status to strategically important, the same as COGO's and to COLI.

We anticipate that Greenland HK's market position will continue to strengthen as it ramps up its operating scale. The company's sales increased 77% to Chinese renminbi (RMB) 16.3 billion in the first half of 2017. In 2016, full-sales were RMB18.2 billion.

We expect Greenland HK's leverage to improve in 2017 and 2018, due to its anticipated margin recovery after the completion of legacy projects. In addition, the company's revenues will also increase following its expanded scale. Overall, we estimate its debt-to-EBITDA ratio will improve to 6.0x-6.3x in 2017 from 7.1x in 2016 and 36.8x in 2015, although it remains high.

The negative rating outlook on Greenland HK reflects the outlook on the Greenland Group. The negative outlook on Greenland Group reflects our expectations that the group's leverage will remain high over the next 12-24 months.

We may lower the rating on Greenland HK if we downgrade Greenland Group. This could happen if: (1) The group's property sales and its profitability deteriorate; or (2) its debt-funded expansion is more aggressive than we expect, such that EBITDA interest coverage declines below 1.5x or the debt-to-EBITDA ratio shows no sign of improvement. The rating on the group may also come under pressure if we lower our assessment of the group's internal control and governance.

We may also lower the rating on Greenland HK if: (1) we believe that the company's importance within Greenland Group has weakened because of a change in the parent's strategy; or (2) the group's control and supervision of Greenland HK weakens, which a fall in the parent's shareholding in the company would indicate.

We may revise Greenland HK's outlook to stable if we revise Greenland Group's outlook to stable.

We may revise the Greenland Group's outlook to stable if the group: (1) demonstrates disciplined financial management that improves its cash flow adequacy and leverage, such that the EBITDA interest coverage stays above 2x and the debt-to-EBITDA ratio improves significantly; and (2) resolves its subsidiaries' overdue borrowings in a timely manner without affecting its market standing or financing access.

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