HONG KONG — A leading real estate developer of green technological properties – Modern Land (China) Co Ltd (“Modern Land,” the “Company,” together with its subsidiaries, the “Group,” HKSE stock code: 1107.HK) — is pleased to announce that Fitch Ratings, an international credit ratings institution, has affirmed the Group’s Long-Term Foreign- and Local-Currency Issuer Default Rating (IDR) at “B+” with the Outlook Stable. Fitch has also affirmed the Group’s senior unsecured rating and the ratings on all outstanding bonds at “B+” with a Recovery Rating at “RR4”.
In August 2016, Fitch initially upgraded the Group’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to “B+” from “B” with the Outlook Stable. Fitch also upgraded the Group’s senior unsecured rating and the ratings on all outstanding bonds to “B+” from “B”.
According to latest press release from Fitch, Modern Land’s ratings are supported by improving landbank quality after the Company repositioned its business towards tier 1 and 2 cities, which have higher land prices, to support contracted sales growth.
Larger Scale: Modern Land’s reported and attributable contracted sales increased by about 47% yoy to CNY16.6 billion and CNY10.6 billion in 2016, respectively. Sales for January-March 2017 are also on track, having increased by 14% yoy to CNY3.4 billion, despite a series of government measures to rein in property prices since October 2016. Fitch expects the Company to achieve its reported contracted sales target of CNY22 billion in 2017, based on CNY36 billion of saleable resources.
Improving Landbank: Fitch estimates the company’s landbank is enough for around three years of sales, having improved from about two years of sales in 2015. Modern Land’s attributable available-for-sale landbank was 2.8 million square meters (sq.m.) in gross floor area (GFA) at end-2016. Modern Land’s landbank quality also strengthened after it extended coverage to more tier 1 and 2 cities since 2014. Its attributable unsold landbank by area in Xiantao and Dongdaihe, two tier 4 Chinese cities, accounted for around 25% of the total at end-2016, down from 35% at end-June 2016 and 38% at end-2015. Fitch estimates that tier 1 cities, like Beijing and Shanghai, and tier 2 cities, like Hefei, Changsha and Suzhou, now account for about 70% of Modern Land’s existing saleable resources by value.
Sufficient Liquidity, Lower Funding Cost: Modern Land’s liquidity remains healthy, with total cash of CNY6.8 billion including restricted cash. Modern Land managed to significantly lower its funding cost to 8.1% in 2016, from 10.5% in 2015 and 11% in 2014. Fitch expects the lower borrowing cost to partially offset lower GPM and strengthen Modern Land’s credit profile.
Leverage Increase Moderating: Modern Land’s leverage remained controlled at end-2016 and was comparable with that of ‘B+’ rated peers. Fitch estimates that leverage – measured by net debt/adjusted inventory – rose to 34% at end-2016, from 23% at end-2015, after the Company spent capital on land acquisitions and joint venture investments to increase its landbank in higher-tier cities. Fitch expects Modern Land’s leverage to remain below 40% until the Company substantially increases its land reserves relative to sales.
In the past 2016, Modern Land accomplished a stable growth with its revenue increasing by approximately 33.2% to approximately RMB8,457.9 million and net profit advancing by approximately 18.8% to approximately RMB714 million. The Group’s contracted sales achieved a remarkable increase of approximately 46.8% to approximately RMB16,572.2 million while the average selling price per sq.m. registered approximately RMB11,340. As at end of 2016, total land bank in the PRC held by the Group recorded approximately 5.4 million sq.m.
The Group strategically grasped opportunities arisen from green finance in 2016 after successfully issuing USD350 million green bonds due 2019 with coupon rate of 6.875% per annum, which made it the first Chinese property developer listed in Hong Kong issuing such bonds. The Group also introduced Great Wall Pan Asia International Investment Company Limited and China Cinda (HK) Asset Management Co., Limited as strategic shareholders. In addition, the Group formed North American fund with Great Wall Pan Asia to invest in the real estate development projects in North America.
Mr. Zhang Peng, Executive Director and President of the Group, said: “Rating at ‘B+’ granted by Fitch indicates that the Group’s great efforts in various aspects including enhancing profits, controlling leverage, optimizing landbank are highly acknowledged by international capital markets. As a Chinese developer with differentiated core competitiveness, Modern Land has been engaged in developing Green Technology + Comfort & Energy-saving + Mobile Interconnecting Full-life Cycle Communities. While seeking business development, the Group also gives prominent priority to views and evaluations from capital market as well as pursues sufficient communication with them. Inspired by the rating this time, the Group will continue to develop its advantages in green real estate industry by enriching green energy-saving product lines, actively acquiring quality land, optimizing landbank structure so as to be more responsive to continuous attention from markets.”