RAM Ratings reaffirms Country Garden’s AA3(s) rating

Published on 10 Sep 2019.

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RAM Ratings has reaffirmed the AA3(s)/stable rating of Country Garden Real Estate Sdn Bhd’s (CGRE) RM1.5 bil IMTN Programme (2015/2035). This reflects our view that CGRE’s ultimate parent – China-based Country Garden Holdings Company Limited (Country Garden or the Group) – will maintain its strong market position and solid cashflow-generating aptitude despite the softer Chinese property market. 

The rating considers Country Garden’s firm market position within the mass-market segment of the Chinese property sector, its minimal project concentration risk and good geographical diversity. Country Garden retained its pole position as China’s biggest residential property developer in both 2018 and 1H 2019. The Group’s contracted sales expanded 31% to RMB501.9 bil in 2018. Nonetheless, the growth of the Chinese residential property sector moderated to 2% in terms of floor space – the result of ongoing curbs on this sector, weaker market sentiments and a slower economy. More costly housing still lifted national sales by 15%. Despite the industry’s 9% sales growth in 7M 2019, Country Garden’s sales retreated 15% in 1H fiscal 2019, partly due to high-base effects. While the Group anticipates an uptick in 2H 2019, we expect a modest sales growth for Country Garden this year as the Chinese government is likely to maintain a tight rein over this sector.

New sales and progressive recognition of lofty locked-in sales from earlier years boosted Country Garden’s top line and operating profit before depreciation, interest and tax by a respective 67% and 74% in fiscal 2018. Despite this, the Group’s operating cashflow debt coverage (OCFDC) thinned markedly from 1.65 to 0.81 times amid hefty cash outlays to fund project construction and its heavy debt burden. In 1H FY Dec 2019, Country Garden’s revenue and OPBDIT continued to grow by a respective 53% and 41%. The slower sales growth and still hefty construction expenditure are envisaged to weaken the Group’s OCFDC to 0.4-0.5 times this year. Nonetheless, this level is still strong and supportive of its rating.

Meanwhile, the rating is moderated by the Group’s aggressive risk appetite and highly leveraged balance sheet. Country Garden’s debt load had augmented to RMB328.5 bil as at end-December 2018 (+53%), translating into a gross gearing ratio of 1.89 times (end-December 2017: 1.84 times). Nonetheless, its enlarged cash reserves eased its adjusted net gearing from 0.53 to 0.49 times. Although debt level inched up to RMB332.2 bil as at end-June 2019, Country Garden’s gearing ratio improved to 1.78 times due to a larger equity base. Given its more prudent land-banking strategy, this uptrend in debt level may slow down. The Group incurred RMB219.1 bil on land purchases in fiscal 2018 – a stark contrast against the RMB318.7 bil spent in fiscal 2017. While the Group has allocated RMB150 bil in fiscal 2019, we note its historical tendency to deviate from original plans.

The rating is also constrained by Country Garden’s substantial exposure to more challenging Tier 3 and Tier 4 cities. That said, the Group is experienced in operating in such areas. The Chinese government’s recent move to relax restrictions on household registrations for lower-tier cities is expected to encourage migration to these cities. which will boost demand for housing, thereby benefitting developers like Country Garden in the longer run. In the meantime, the Group is also exposed to the inherent cyclicality of the property sector. 

The rating of the IMTN reflects the unconditional and irrevocable corporate guarantees extended by Country Garden, Bright Start Group Limited and Top Favour Holdings Limited on a joint and several basis. Therefore, the rating mirrors that of Country Garden (as the strongest obligor) and its credit fundamentals.


Analytical contact
Karin Koh, CFA
(603) 3385 2508

Media contact
Padthma Subbiah
(603) 3385 2577


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad

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