Fitch Ratings has assigned a 'BB+' rating to
The notes are issued by
The proposed notes are unconditionally and irrevocably guaranteed by SHCL and rated at the same level as its senior unsecured rating because they constitute its direct and senior unsecured obligations. SHCL intends to use the net proceeds to refinance existing debt.
Fitch uses a consolidated approach to rate SHCL, which is 67% owned by its parent,
In addition, recurring rental income from the group's shopping mall portfolio has increased. Recurring EBITDA/interest rose to 0.5x in 2020 from 0.4x in 2019, despite the coronavirus pandemic.
KEY RATING DRIVERS
Large Scale: SGL's attributable sales amounted to
Lower Leverage: Fitch expects SGL's leverage to remain below 40% as we believe it is committed to controlling leverage, despite some increase in land-acquisition and construction expenditure. SGL's leverage, including proportionate consolidation of joint ventures and associates, dropped to around 22% in 2020 and 26% in 2019, from 44% in 2018, helped by reduced land acquisition and increasing capital contribution from non-controlling interests.
SGL spent
Recurring Income Supports Rating: We estimate that SGL's recurring income, mainly from
Stabilised Operation: SGL's operational and financial risks, as well as its access to liquidity, did not deteriorate significantly after its former chairman was jailed in
Focus on
Margin Decline, Fast Churn: SGL's EBITDA margin (excluding capitalised interest) declined to 21% in 2020 from 31% in 2019. SGL's land costs are stable, but unit construction cost was high at around
DERIVATION SUMMARY
Fitch's consolidated approach to rating SGL and SHCL is based on our Parent and Subsidiary Linkage Rating Criteria due to SGL's 67% stake in SHCL. The strong strategic and operational ties are reflected by SGL representing SHCL's entire exposure to the
SGL's quick sales-churn strategy contributed to the rapid expansion of its contracted sales to a level that is higher than that of most 'BB' category peers. SGL's total sales and attributable sales reached
SGL has also rapidly expanded its investment properties, which generated
Compared with investment-grade peers, SGL has a much shorter track record of maintaining a stable financial profile as it aggressively expanded and built up land bank in 2016-2018.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Our Rating Case for the Issuer
total contracted sales of about
attributable land premium represents 50% of attributable sales proceeds in 2021
attributable property development and
Investment-property revenue to reach
Overall EBITDA margin (excluding capitalised interest) to remain above 20%
SGL maintains controlling shareholding in SHCL and no weakening in the operational ties between the two entities
RATING SENSITIVITIES
For both SGL and SHCL:
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Net debt/adjusted inventory (after proportionate consolidation of joint ventures) sustained below 30%
Recurring EBITDA/interest paid sustained above 0.6x
Sustained neutral to positive cash flow from operations.
Longer track record of operational and financial stability comparable with that of investment-grade peers.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Net debt/adjusted inventory (after proportionate consolidation of joint ventures) above 40% for a sustained period
Recurring EBITDA/interest paid sustained below 0.3x
For SGL, a weakening of linkages between SGL and SHCL may lead to negative rating action.
All ratios mentioned above are based on SGL's consolidated financial data.
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
Sufficient Liquidity: SGL had an unrestricted cash balance of
Stable Funding Access Ensures Liquidity: The arrest of the former chairman temporarily affected the group's funding access in 2H19, but it has managed to obtain financing from a large number of onshore and offshore banks since
The group's onshore and offshore bonds have change of control covenants, whereby the group has to make an offer to repurchase all outstanding notes if a change of control is accompanied by negative rating action, a Negative Outlook or a downgrade by an onshore rating agency for its onshore bonds or an international rating agency for its offshore bonds. The group has not breached its bond covenants since the former chairman's arrest.
ISSUER PROFILE
SGL is a property developer focused on
SHCL is the key subsidiary of SGL that operates all of SGL's property development and investment property businesses in
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch's calculation of
DATE OF RELEVANT COMMITTEE
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 ACTIONSENTITY/DEBT RATING
senior unsecured
LT BB+ New Rating
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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