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Fitch: Country Garden's Diversification Drive Enhances Credit Profile
September 2, 2014 / 8:01 AM / 3 years ago

Fitch: Country Garden's Diversification Drive Enhances Credit Profile

(The following statement was released by the rating agency) SINGAPORE/HONG KONG, September 02 (Fitch) Fitch said today that Country Garden Holdings Co. Ltd.'s (Country Garden; BB+/Stable) 1H14 financial results show that the company's efforts to improve its credit profile are paying off. The company further diversified its business with the number of projects rising to 209 at end-1H14 from 171 as at end-2013, and the addition of 15 new cities. Country Garden has also sought to keep a stable financial profile with a proposed HKD3.1bn rights issue announced on 27 August 2014. The company's leverage, as measured by net debt/adjusted inventory, would have been 43% at end-1H14 if the rights issue had been included, unchanged from the end-2013 level. A key factor Fitch will evaluate when considering positive action on Country Garden's ratings is the company's progress on efforts to become a nationwide homebuilder. Since 2010, the company has focused on expanding beyond its traditional stronghold in Guangdong province. The proportion of contracted sales from this province fell to 30% in 1H14 from 44% in 2013 and over 60% before 2013. Only 14% of the new land acquired in 1H14, by gross floor area, was in Guangdong province. However, Fitch notes that Country Garden is still in the process of establishing leading positions in the new markets it has entered since 2010. Out of the 22 provinces and municipalities it operated in in 1H14, four generated over CNY5bn of sales. This is an improvement over the full-year 2013 when only Guangdong province generated more than CNY10bn of sales, a level Fitch considers a leading homebuilder would achieve within a province. But it will have to move beyond provinces in southern and eastern China and have a range of provinces that generate over CNY10bn in sales on a sustainable basis to be considered a nationwide player. This could happen in two years if the company continues on its current trajectory. Fitch also notes that Country Garden has successfully transitioned to building high-rise homes from its traditional strength in landed housing projects. The company's sales turnover, measured by the ratio of contracted sales to gross debt, was 1.9x (annualized) in 1H14, the same as at end-2013, with almost three quarters of its 1H14 contracted sales came from high-rise buildings. This was likely because the company stuck to its core strength of selling to wealthy individuals and upgraders. One third of its 1H14 sales came from large units- either high-rise apartments of over 140 sqm or landed homes. Only 16% of its residential properties sold in 1H14 were below 90 sqm, the segment that first-time homebuyers gravitate towards. For a more detailed analysis of the rating drivers and sensitivities for Country Garden, please refer to the rating action commentary "Fitch Rates Country Garden 'BB+'; Outlook Stable ", dated 4 May 2014, available at Contact: Su Aik Lim Director +65 6796 7233 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Vanessa Chan Director +852 2263 9559 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on 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 WEBSITE '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.

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