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Investing.com -- Moody's Ratings has updated the outlook on Greentown China Holdings Limited (Greentown) from negative to stable, while also affirming the company's B1 corporate family rating, backed senior unsecured rating, and senior unsecured rating.
The adjustment in outlook is attributed to Greentown's consistent operational and financial performance, as well as a robust liquidity cushion despite market hurdles. Greentown's performance surpasses the market average in sales, and it continues to have diverse funding access. These observations were made by Daniel Zhou, Assistant Vice President and Analyst at Moody's Ratings.
Zhou further stated that the rating action is based on the expectation that Greentown will persistently receive substantial financial backing from its largest shareholder, China Communications Construction Group Limited (CCCG). This expectation is fueled by Greentown's ongoing strategic and economic value to CCCG, which utilizes Greentown as its principal property development platform.
The B1 corporate family rating given to Greentown includes its standalone credit strength and a one-notch uplift, with the expectation of continued financial support from CCCG during times of need. Greentown's standalone credit strength is a reflection of its strong brand and established market position, which enables it to outperform the broader market in sales and maintain good liquidity. However, this strength is limited by its exposure to the cyclical Chinese property sector, improving but still moderate debt leverage, and exposure to joint ventures.
In the next 12-18 months, despite ongoing market challenges, Greentown is expected to continue to outperform the broader market in sales performance. This is supported by Greentown's strong brand name and established market position, especially in the Yangtze Delta River region, which boasts a wealthier economy and larger exposure to higher-tier cities.
In the same timeframe, Greentown's annual gross contracted sales decline is predicted to reduce to around 5%, from the 12% drop recorded in 2024. This expectation of a gradual recovery in the sector and the company's sales is also backed by the government's policy stimulus introduced since September 2024.
Greentown's annual revenue is estimated to moderate to RMB140-150 billion over the next 12-18 months after growing by 21% to RMB159 billion in 2024. The decrease in gross contracted sales will be partly offset by the increasing number of consolidated projects.
Despite legacy high land costs and pricing pressure, Greentown's gross profit margin will remain low, resulting in lower earnings generation as measured by EBITDA. However, the company is expected to be cautious in land acquisition and use cash flow to reduce debt. As a result, Greentown's total debt is projected to fall more than its EBITDA.
As a consequence, Greentown's adjusted debt/EBITDA is projected to further decrease to 6.5x-6.8x over the next 12-18 months from around 7.0x in 2024 and 7.9x in 2023. Similarly, Greentown's interest coverage — measured as EBIT/interest — will slightly increase to 3.0x-3.2x over the next 12-18 months from around 3.0x in 2024 and 2.6x in 2023. These metrics are strong for Greentown's standalone credit profile.
Greentown's liquidity is solid. The company's cash holdings, along with its operating cash flow, can adequately cover its maturing debt, committed land premiums, and dividends over the next 12-18 months. Greentown maintains smooth access to different types of onshore and offshore funding channels, supported by its ownership by CCCG as a state-owned enterprise.
This good funding access is also demonstrated by Greentown's issuance of a USD500 million offshore bond in February 2025, marking the first successful US dollar bond issuance by a Chinese property developer after nearly two years of absence.
The one-notch uplift reflects Greentown's operational significance to CCCG, given Greentown's status as the major property development arm of CCCG. The uplift is also supported by Greentown's continued financial contribution to CCCG, given Greentown's stable operating and financial performance amid gradual sector recovery. The support assumptions also factor in CCCG's strong influence over and track record of providing financial support to Greentown, and CCCG's strong ability to provide support.
The stable rating outlook is indicative of the expectation that Greentown will maintain stable financial metrics and good liquidity over the next 12-18 months. In addition, the outlook reflects the expectation that the likelihood of the company receiving support from CCCG in times of need will remain unchanged.
Greentown's ratings could be upgraded if the company strengthens its sales and financial position; or if support from CCCG increases. Specifically, the ratings could be upgraded if Greentown's debt/EBITDA falls below 6.5x-7.0x and EBIT interest coverage rises above 2.5x-3.0x, both on a sustained basis.
On the other hand, Greentown's ratings could be downgraded if its sales decline or it aggressively grows its business, such that its credit metrics and liquidity weaken, with its EBIT/interest coverage falling below 1.5x; or its liquidity deteriorates, reflected in its unrestricted cash/short-term debt falling below 1.0x.
Any sign of weakening in likelihood of support from or reduced ownership by CCCG would also strain the company's rating.
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