Fitch Ratings has affirmed Chinese property developer Modern Land (China) Co., Limited's Long-Term Foreign-Currency and Local-Currency Issuer Default Ratings (IDRs) at 'RD' (Restricted Default), as the company failed to repay its USD250 million outstanding senior notes due 25 October 2021.

There is no grace period for the bond repayment.

The non-payment is consistent with an 'RD' rating, signifying the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a material financial obligation.

At the same time, Fitch has affirmed Modern Land's senior unsecured rating and the ratings on its US dollar bonds at 'C' with a Recovery Rating of 'RR6'.

Fitch is withdrawing the ratings as Modern Land has chosen to stop participating in the rating process. Therefore, Fitch will no longer have sufficient information to maintain the ratings. Accordingly, Fitch will no longer provide ratings or analytical coverage for Modern Land.

Key Rating Drivers

Non-Payment of Notes: Modern Land's failure to make payment on the US dollar bonds due October 2021 is consistent with Fitch's definition of an 'RD' rating, as the company has experienced an uncured payment default on a material financial obligation but has not yet entered into bankruptcy filings, administration, receivership, liquidation, or other formal winding-up procedures, and has not otherwise ceased operating.

Cross Default with Notes: The non-payment of Modern Land's October 2021 US dollar bonds triggered events of default on the company's other US dollar notes, which will become immediately due and payable if the bond trustee or holders of at least 25% in aggregate principal amount of the offshore notes declare so.

Derivation Summary

Modern Land's IDRs were downgraded to 'RD' in line with our definition of an uncured payment default but no initiation of bankruptcy filings, administration, receivership, liquidation, or other formal winding-up procedures as yet and continuity of business operations.

Key Assumptions

Fitch's Key Assumptions Within Our Rating Case for the Issuer:

Attributable contracted sales of CNY24 billion in 2021;

Gross profit margin from property development maintained at around 25%-26% in 2021-2022;

Construction cash cost accounting for 30%-35% of attributable contracted sales in 2021-2022;

Land premium accounting for 55%-60% of annual sales receipts in 2021-2022 and average land acquisition costs to increase in 2021-2022.

KEY RECOVERY RATING ASSUMPTIONS

The recovery analysis assumes that Modern Land would be liquidated in a bankruptcy because it is an asset-trading company;

We have assumed a 10% administrative claim

Liquidation Approach

The liquidation estimate reflects Fitch's view of the value of balance-sheet assets that can be realised in sale or liquidation processes conducted during bankruptcy or insolvency proceedings and distributed to creditors.

An advance rate of 60% is applied to adjusted inventory, as Modern Land's EBITDA is lower than 20%;

Property, plant and equipment advance rate at 60%;

An advance rate of 70% applied to accounts receivable;

An advance rate of 0% applied to both restricted and excess cash due to lack of clarity from the issuer on the breakdown of cash for 1H21.

RATING SENSITIVITIES

Rating sensitivities are no longer relevant as the ratings have been withdrawn.

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 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Issuer Profile

Modern Land, established in 2000, was listed on the Hong Kong Stock Exchange in 2013. The company focuses on green housing by adding energy-preserving systems to its buildings.

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

Following the withdrawal of ratings for Modern Land Fitch will no longer be providing the associated ESG Relevance Scores.

RATING ACTIONS

Entity / Debt

Rating

Recovery

Prior

Modern Land (China) Co., Limited

LT IDR

RD

Affirmed

RD

LT IDR

WD

Withdrawn

RD

LC LT IDR

RD

Affirmed

RD

LC LT IDR

WD

Withdrawn

RD

senior unsecured

LT

C

Affirmed

RR6

C

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure: Modern Land (China) Co., Limited

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