RAM Ratings revises outlook on Country Garden’s AA3(s) issue rating to negative

Published on 14 Dec 2022.

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RAM Ratings has revised the outlook on the long-term rating of Country Garden Real Estate Sdn Bhd (CGRE)’s Islamic Medium-Term Notes Programme (IMTN) to negative from stable. Concurrently, we have reaffirmed the IMTN’s AA3(s) rating. This reflects similar rating action in respect of its ultimate parent company, China-based developer Country Garden Holdings Company Limited (Country Garden or the Group). 

The outlook revision reflects our expectations that Country Garden’s debt coverage levels will remain weak in the next year or so amid the marked slowdown in the Chinese residential property sector although the Government’s latest 16-point policy should help support recovery in housing demand. The Group’s sales, profitability indicators and OCFDC in 1H FY Dec 2022 were significantly weaker than anticipated as property sales slid in weak market conditions. 

On balance, the Group was resilient during this period as sales decline (-38.4% in 9M 2022) was not as severe as those of the top 100 developers1 (-47%). It retained a healthy liquidity position and positive operating cashflows in 1H FY Dec 2022 and had continued access to various funding channels. Crucially, the Government’s policy support for the sector is expected to gradually help restore buyers’ shaken confidence over non-delivery of pre-sold homes and lift the sector’s prospects. That said, it remains to be seen whether there will be meaningful rebound in housing sales.

Country Garden’s operating profit before depreciation, interest and tax (OPBDIT) shrank 14% to RMB61.38 bil in FY Dec 2021, tumbling another 74% in 1H FY Dec 2022 as a result of lower selling prices, pricier building materials, slower construction progress amid lockdowns, thinner margins for newer projects and inventory writedowns. Its overall performance was below expectations. Although debts eased to RMB294.28 bil as at end-June 2022 (end-December 2020: RMB327.14 bil), it could not offset the Group’s substantially weaker operating performance in 1H FY Dec 2022, causing its annualised OCFDC to slip to 0.15 times. 

Looking ahead, we expect Country Garden’s sales to drop by about a third this year, improving slightly in 2023 from a low base. Correspondingly, OPBDIT will fall about 65% this year before increasing 15% in 2023. Its debt level is expected to stay largely flat on the back of a more controlled pace of land acquisitions. The Group’s OCFDC is anticipated to pick up to about 0.20 times over the next one to two years.

Country Garden’s position as China’s biggest residential property developer, minimal project concentration and commendable geographical diversity continue to support the rating. This is complemented by its healthy liquidity position and diverse funding sources. On the other hand, a leveraged balance sheet and weaker debt coverage levels are moderating factors, as are the Group’s focus on China’s more challenging Tier 3 and Tier 4 cities and its exposure to the sector’s vagaries and cyclicality.

The rating of the IMTN is based on unconditional and irrevocable corporate guarantees extended by Country Garden and its subsidiaries, Bright Start Group Limited and Top Favour Holdings Limited. As the guarantees have been provided on a joint and several basis, the rating reflects the credit profile of Country Garden, the strongest obligor.

1   Tracked by China Real Estate Information Corp, a provider of real estate information in China.


Analytical contacts
Karin Koh, CFA 
(603) 3385 2508

Thong Mun Wai 
(603) 3385 2522


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
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