Fitch Ratings has affirmed
The Outlook on the IDR is Stable.
COLI's IDR incorporates support from its ultimate parent,
COLI's Standalone Credit Profile (SCP) of 'bbb+' is supported by its market leadership, a healthy financial structure and strong financial flexibility over economic cycles. The Stable Outlook reflects Fitch's expectation that COLI's operations, financials and liquidity will remain stable.
Key Rating Drivers
Strategic Importance of Homebuilding Operations: The operations of
Strong Parent Supports Subsidiary: COLI's IDR benefits from the stronger credit profile of
Sales Recovery in 2023: COLI's total sales rose by 55% yoy in 5M23, outpacing the industry's 8% increase, according to the
We expect COLI's sales to rise by 20% in 2023, which implies sales of
Land Banking to Support Growth: COLI budgeted for its land banking expenditure in 2023 to increase by a double-digit percentage, but it has only acquired four parcels for
Management expects more opportunities for land acquisition in the second half of the year, as many developers prefer to bid in the first half so that the land may contribute to sales in the same year. That said, we believe COLI's sellable resources can support at least three years of sales.
Leverage Higher but Remains Healthy: We believe COLI can maintain leverage - net debt/net property assets - around 30%, based on our assumption of a 2023 sales recovery, a sustained strong cash collection rate of over 90% and flat land acquisition expenditure. COLI's leverage rose to 31% in 2022 from 26% in 2021, due mainly to a large reduction in sales while land and construction expenditure fell by a smaller extent. It maintained land acquisition activities in 2022, with total land premium (including M&A) remaining high at
Retaining Offshore Funding: About 37% of COLI's debt was offshore borrowing at end-2022, including 22% from
Derivation Summary
COLI, one of
We compare COLI with top homebuilder peers, including
COLI has larger attributable sales than CR Land and lower exposure to joint ventures (JVs) and non-controlling interests (NCI). However, CR Land has a stronger investment-property portfolio that generates stable recurring income, providing better protection against business cycles. Vanke's scale is larger and return efficiency is higher, but Vanke has much higher exposure to JVs and NCI, indicating weaker balance-sheet transparency. Poly's leverage is high relative to peers, reflecting a one-notch lower SCP.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Total contracted sales to increase by 20% in 2023 (5M23: +55%) and flat sales in 2024. Our assumption of 20% sales growth in 2023 is in line with management guidance;
Attributable gross floor area (GFA) acquired/GFA sold at 0.7x in 2023 (2022: 0.7x) and 1x in 2024;
Construction expenditure to account for 35% of sales in 2023 and 30% in 2024;
Weighted-average interest cost to increase by 50bp in 2023, before falling by 30bp in 2024 (2022: 3.57%), based on Fitch's forecast of US dollar policy rate movements and 20% of COLI's debt from HIBOR-based floating-rate loans, and expectations of stable borrowing costs for the rest of COLI's debt;
Dividend payout ratio at 30% in 2023 and 2024 (2022: 30.8% of core net profit which excludes after-tax fair value gain of investment properties and net foreign exchange gains and losses).
RATING SENSITIVITIES
IDR
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive rating action on COHL, whose rating is linked to the ultimate parent
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative rating action on COHL, whose rating is linked to the ultimate parent
A perceived weakening of incentives for COHL to support COLI.
SCP
Factors that could, individually or collectively, lead to the SCP being revised higher:
A revision higher is not expected over the next 12 to 18 months due to the high cyclicality and regulatory risks in
Factors that could, individually or collectively, lead to the SCP being revised lower:
Deterioration in COLI's net debt/net property assets to above 35% over a sustained period could lead to a lower SCP.
For the rating on
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive rating action on the Chinese sovereign (A+/Stable);
Increasing likelihood of support from the Chinese sovereign.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative rating action on the Chinese sovereign;
Decreasing likelihood of support from the Chinese sovereign.
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
Ample Liquidity: COLI had readily available cash of
Fitch expects the group to maintain strong liquidity to fund development costs, land-premium payments and debt obligations, given diversified funding channels onshore and offshore, long-term relationships with banks and financial institutions, and a flexible land-acquisition strategy. COLI issued various medium-term notes and corporate bonds in 2022, totalling
Issuer Profile
COLI, incorporated in 1979, has been listed on the
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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