Fitch ratings has affirmed
Fitch has also affirmed the senior unsecured rating and the ratings on CCRE's outstanding US-dollar senior unsecured notes at 'B' with a Recovery Rating of 'RR4'. Fitch has removed all ratings from Rating Watch Negative.
The affirmation and removal of the Rating Watch Negative follows CCRE's timely repayment of its
The Negative Outlook reflects tight liquidity, weak sales and large capital market debt that matures in 2023.
Key Rating Drivers
Repayment of Bond: CCRE has repaid the
Significant Maturities in 2023: CCRE has significant offshore bonds maturing in 2023, including the
Share Sale Agreement: CCRE announced on 21 July that it has entered into a sale and purchase agreement to sell a 29% stake of the company to a wholly owned subsidiary of
Weak Contracted Sales: We expect CCRE's full-year 2022 contracted sales to drop by 30% to around
Leading Position in
Derivation Summary
CCRE's ratings and the Negative Outlook reflect its weak sales and tight liquidity.
CCRE has a weaker business profile than
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Total contracted sales of
Cash collection rate at 80%-90% in 2022-2024
Gross profit margin of about 15% in 2022-2024
Annual land acquisition budget of about 10%-30% of contracted sales proceeds in 2022-2024.
Recovery Rating Assumptions:
Liquidation Approach
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% is applied to accounts receivable. This treatment is in line with our Recovery Rating criteria.
Advance rate of 57% is applied to the book value of self-owned investment properties. The portfolio has an average rental yield of 3%, which is reasonable. The implied rental yield on the liquidation value for the investment-property portfolio would improve to 6%, which we consider as acceptable in a secondary market transaction.
Advance rate of 50% is applied to property, plant and equipment, which mainly consists of buildings, the value of which is insignificant.
Advance rate of 62% is applied to net property inventory, which mainly consists of completed properties held for sales, properties under development (PUD) and prepayments for land acquisitions. Different advance rates were applied to these various inventory categories to derive the blended advance rate.
Advance rate of 70% is applied to completed properties held for sale. Completed commodity housing units are closer to readily marketable inventory. The company's historical gross margin for development property is around 15% and it adopts a fast-churn strategy. This means its book value of inventory should be close to market value and we therefore applied a higher advance rate than the typical 50% mentioned in the criteria.
Advance rate of 50% is applied 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. The PUD balance - before applying the advance rate - is net of margin-adjusted customer deposits.
Advance rate of 90% is applied to deposits for land acquisitions. Similarly to completed commodity housing units, land held for development is close to readily marketable inventory. The company is a leading developer in
Advance rate of 50% is applied to joint-venture (JV) net assets. JV assets typically include a combination of completed units, PUD and land bank. The advance rate is applied in line with the baseline advance rate for inventory.
The allocation of value in the liability waterfall results in a Recovery Rating corresponding to 'RR4' for the offshore senior notes.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The Outlook will be revised to Stable if the negative sensitivities are not met. This includes a sustained improvement in contracted sales, liquidity and capital structure, and greater clarity in the repayment of the offshore bonds maturing in 2023.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Deterioration in liquidity or funding access
No meaning recovery 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: CCRE had unrestricted cash of
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
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