Fitch Ratings has downgraded
The downgrade reflects
Key Rating Drivers
Significant Capital-Market Maturities:
Limited Funding Access: We expect
Limited Liquidity Headroom: The company has not disclosed to Fitch its latest available cash balance for debt repayments, as the company is conducting an interim review. We believe its liquidity headroom has weakened in view of the poor sales in 1H22 and that the company is prioritising cash to repay its onshore debt in 3Q22, as it announced the deferral of the payment of cash dividends to shareholders to 29 July, from 4 July.
Sales Decline: Contracted sales dropped by 40% yoy in 1H22, broadly in line with the market. Sales in June rose by 14% mom to
Doubt Over Going Concern:
Derivation Summary
Key Assumptions
Total contracted sales of
Unsold land bank life maintained at two to three years, and
KEY RECOVERY RATING ASSUMPTIONS
The liquidation estimate reflects Fitch's view of the value of balance-sheet assets that can be realised in a sale or liquidation process conducted during bankruptcy or insolvency proceedings and distributed to creditors.
Advance rate of 80% applied to accounts receivable. This treatment is in line with our recovery rating criteria.
Advance rate of 24% applied to the book value of self-owned investment properties. The portfolio has an average rental yield of about 1%, which is low. The implied rental yield on the liquidation value for the investment-property portfolio would improve to 6%, which will be considered acceptable in a secondary market transaction.
Advance rate of 50% applied to property, plant and equipment, which mainly consists of buildings, the value of which is insignificant.
Advance rate of 59% applied to net property inventory. The inventory mainly consists of completed properties held for sales, properties under development (PUD), prepayments for redevelopment projects, and deposits for land acquisitions. Different advance rates were applied to these different inventory categories to derive the blended advance rate for net inventory.
Advance rate of 70% to completed properties held for sale. Completed commodity housing units are closer to readily marketable inventory. The company has historically gross margin for development property of around 20%-25%. Therefore, a higher advance rate of 70% (against the typical 50% mentioned in the criteria for inventory) was applied.
Advance rate of 50% to PUD and prepayment for development projects. Unlike completed projects, PUD are more difficult to sell. These assets are also in various stages of completion. A 50% advance rate was applied. The PUD balance - before applying the advance rate - is net of margin adjusted customer deposits.
Advance rate of 90% applied to deposits for land acquisitions. In a similar way to completed commodity housing units, land held for development is closer to readily marketable inventory provided it is in satisfactory locations. The company's land generally is not located in significantly disadvantaged areas. We applied a higher advance rate than the typical 50% mentioned in the criteria.
Advance rate of 80% applied to prepayments for URPs. We view this as similar to prepayments for land, as typically primary development will go through land auction again and the developer that did the primary development will be fully compensated even if they do not secure the land in the auction. We applied a higher advance rate than the typical 50% mentioned in the criteria.
Advance rate of 50% applied to joint-venture (JV) net assets. JV assets typically include a combination of completed units, PUD and land bank. A 50% advance rate was applied in line with the baseline advance rate for inventories.
The allocation of value in the liability waterfall results in a Recovery Rating corresponding to 'RR1' for the offshore senior notes. However, the Recovery Rating for senior unsecured debt is at 'RR4', as
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Sustained improvement in liquidity and funding access, with the company addressing upcoming debt maturities in a timely manner
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Deterioration in liquidity or funding access to address bond maturities for the rest of 2022 and 1H23
Significant decline in contracted sales or cash collection
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Tight Liquidity:
Issuer Profile
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.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONS
Entity / Debt
Rating
Recovery
Prior
LT IDR
CCC+
Downgrade
B+
senior unsecured
LT
CCC+
Downgrade
RR4
B+
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