The downgrade follows the 31 October 2022 downgrade of guarantor CGH's Long-Term Issuer Default Ratings (IDRs) to 'BB-' from 'BB+' with a Negative Outlook.
KEY RATING DRIVERS
The ratings on RLT's guaranteed debentures reflect the credit enhancement provided to investors by the full, unconditional and irrevocable guarantee by the parent, CGH. The guarantee ranks at least pari passu with CGH's unsecured and unsubordinated obligations.
The downgrade of CGH reflects the Chinese property sector's continued poor capital-market conditions, limiting CGH's access to unsecured funding and affecting its financial flexibility. CGH's contracted sales may have stabilised in recent months and Fitch believes its available cash balance and internal cash generation should be sufficient to cover its medium-term capital-market debt maturities. However, there remains uncertainty over the sustainability of its sales, as well as the availability of its cash on hand. Fitch believe these risks are appropriately reflected at the current rating level.
The Negative Outlook on CGH's and therefore RLT's ratings reflect Fitch's view that Chinese property developers' challenging operating and funding environment may persist, further dampening CGH's financial flexibility. However, any change is likely to be gradual, removing the necessity for a Rating Watch.
CGH's ratings are supported by its strong market position, scale and diversification. Fitch believes CGH's liquidity is adequate in the medium term as it can cover its maturities with internal cash generation.
DERIVATION SUMMARY
The ratings on RLT's guaranteed debentures are based entirely on the credit profile of the guarantor, CGH, a leading homebuilder in China with one of the most well-diversified land banks among peers. CGH's closest rating peer in Thailand is Global Power Synergy Public Company Limited (GPSC, BBB-/A+(tha)/Stable; Standalone Credit Profile: bb/a-(tha)), a leading private power producer in Thailand with a 10% share of domestic power generation.
CGH has a significantly larger operating scale and greater geographical diversification of cash flow. GPSC's smaller operating scale is more than offset by its strong revenue visibility as the majority of sales are under power purchase agreements with strong counterparties. Both had a similar level of financial leverage in 2021. CGH is rated one notch below GPSC's Standalone Credit Profile, given the uncertainty over the sustainability of CGH's sales and funding access. CGH's Long-Term IDR is mapped to 'BBB+(tha)', which is one-notch lower than GPSC's 'a-(tha)' Standalone Credit Profile.
GPSC's IDR incorporates a two-notch uplift on a bottom-up basis based on our assessment of a 'Medium' incentive for its parent, PTT Public Company Limited (BBB+/AAA(tha)/Stable), to support GPSC.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
- We do not expect an upgrade in the next 12-18 months as the Outlook on CGH's IDR is Negative; a revision of CGH's Outlook to Stable will result in the Outlook on RLT's guaranteed bond being revised to Stable.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
- A downgrade of CGH's Long-Term IDR.
For CGH's rating, the following sensitivities were outlined by Fitch in our Rating Action Commentary on 31 October 2022:
Factors that could, individually or collectively, lead to positive rating action/upgrade:
- The Outlook will be revised to Stable if there is meaningful improvement in access to unsecured funding and/or contracted sales.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
- Persistent drain on working capital;
- No stabilisation in contracted sales or cash collection;
- Decline in readily available cash.
LIQUIDITY AND DEBT STRUCTURE
Guarantor's Liquidity Is Adequate: CGH had CNY148 billion in cash as of 1H22, of which CNY77 billion is available cash. We believe the company has a sufficient liquidity buffer to support continued debt reduction, both at the project level and the holding-company level.
ISSUER PROFILE
RLT is 100% indirectly owned by CGH, a leading homebuilder in Guangdong, China. RLT launched its first two projects in Thailand in 2018. It now has seven condominium and low-rise projects.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The rating on the debentures is based entirely on the rating of the guarantor, CGH.
Additional information is available on www.fitchratings.com
Source: Fitch Ratings