Fitch Ratings has affirmed
The Outlook is Stable. Fitch has also affirmed Jinmao's senior unsecured rating at 'BBB-'.
Jinmao is rated one notch above its Standalone Credit Profile (SCP) under the 'strong parent, weak subsidiary' approach in our Parent and Subsidiary Linkage Rating Criteria. Jinmao is 36.4%-owned by state-owned
Jinmao's SCP is supported by its strong market position, sufficient and quality land bank, stable leverage and robust financial flexibility amid industry distress. Fitch also believes Jinmao can maintain stable funding costs despite its relatively significant offshore debt exposure, in light of its solid banking relationships. It has also refinanced some of its offshore bonds with cheaper onshore bonds in recent months.
Key Rating Drivers
Sales Ahead of Industry: Jinmao's total sales, including primary land sales, fell by 34% to
Uninterrupted Funding Access: Fitch estimates that Jinmao issued
Offshore Debt to Drop: The company aims to pay down some of its offshore debt in the near-to-medium term. We estimate that
Stable Funding Cost: We believe Jinmao's funding costs will remain stable despite its sizeable offshore debt exposure. The management said its loan costs are relatively stable despite rate changes. Fitch estimates that Jinmao's floating loan cost rose by only 30bp to 1.9% in 1H22 from end-2021, against a 150bp base rate increase during the period. We believe Jinmao may increase its reliance on onshore funding channels to help contain the rise in funding cost. The management believes it can maintain a 4% average funding cost in 2022, compared to 3.8% in 1H22.
Stable Leverage: Fitch expects Jinmao to maintain stable leverage - measured by net debt (including asset-backed securities)/net property development assets - of below 45% in 2022-2023. We estimate that leverage remained flat at 43% in 1H22, from 44% in 2021, after asset-backed securities adjustment. It spent an attributable
Continued Margin Pressure: We expect Jinmao's margins to remain under pressure in 2022-2023. Its secondary development property gross profit margin was 14% in 2021 and 13% in 1H22, mainly due to gradual booking of high-cost land in 2016 and 2017. We expect margins to improve after 2023, as management estimates projects acquired over the past two years have a gross profit margin of 20%.
Uplift from Parent: Jinmao's IDR benefits from a one-notch uplift from parental support. We assess the linkage factors of legal incentive as 'Medium', given the cross-default provisions in the parent's offshore bond terms; strategic incentive as 'Low', as we regard the parent's chemical, energy and agriculture businesses as being more important to Jinmao's property development business; and operational incentive as 'Moderate', as Jinmao is integral to the parent's operations. Analytical overlays were applied.
Derivation Summary
Jinmao's attributable sales scale of around
Jinmao's leverage of around 45% in 2021 and 1H22 is lower than BCDH's reported 53% in 2021. BCDH has large off-balance-sheet assets, but its adjusted leverage of 45%-50% is still higher than that of Jinmao. BCDH's funding of 4.7% is also higher than Jinmao's 4%, indicating slightly weaker financial flexibility. BCDH's offshore funding channel is relatively limited, with only one bond issued in
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Total development-property contracted sales to increase by 5% in 2023E and stay flat in 2024 (2022: -28%);
Attributable land-acquisition outflow to account for 25% attributable cash collection in 2022E and 45% in 2023E (1H22: 14%);
Gross profit margin for development-property contracted sales at 14% in 2022E and 15% in 2023E. (1H22: 13%); total gross profit margin at 19% in 2022E-2023E (1H22: 21.7%).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Significant increase in attributable contracted-sales scale, in line with peers with higher SCPs, while maintaining leverage, measured by net debt/net property assets, below 40%;
Stronger linkage with the parent.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Leverage, measured by net debt/net property assets, sustained above 45%;
Weakening linkage with the parent.
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
Adequate Liquidity: Jinmao had total cash and cash equivalents of
Issuer Profile
Jinmao is a mid-sized, multi-regional property developer in
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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