RAM Ratings has affirmed the B3 rating of Country Garden Real Estate Sdn Bhd (CGRE or the Company)’s Islamic Medium-Term Notes Programme (IMTN). The long-term outlook remains negative.
The rating action takes into consideration recent developments at CGRE’s ultimate parent company – Country Garden Holdings Company Limited (Country Garden or the Group) – the latest of which is a winding-up petition against the Group, filed by a creditor in Hong Kong on 27 February 2024. This event could further complicate the Group’s ongoing restructuring efforts and increase the challenges it faces in strengthening its financial position. Country Garden and its subsidiaries are guarantors for CGRE’s IMTN.
The ratings agency said it no longer consider the credit strength of the guarantors as providing any credit enhancement to the IMTN. This is notwithstanding Country Garden’s stated commitment to maintain normal operations and ensure delivery of projects still under construction in China and its recent asset disposal initiatives. These include the sale of a minority stake in a Chinese commercial centre operator, the disposal of remaining investments in Australia and the listing for sale of properties in Guangzhou and London. The agency said it understands from the Group that more than 30 of its projects have been whitelisted by Chinese local governments as eligible for financing support. Any such support should help ease cashflow pressure on Country Garden’s development activities.
The IMTN rating – which reflects CGRE’s own standalone credit profile – takes into account the ‘close’ parent-subsidiary linkage between the Company and Country Garden (previously assessed as ‘very close’). CGRE is currently seeking sukukholder approval to formally waive a cross-default clause under the terms of the IMTN and revise the terms to better protect sukukholders. RAM said it will closely monitor developments in this regard in the coming months and reassess the IMTN rating when more details become available.
CGRE’s pre-tax loss narrowed to RM378.5 mil in FY Dec 2022 (FY Dec 2020 pre-tax loss: RM1.18 bil) while its property sales inched up to RM1.38 bil last year (FY Dec 2022: RM1.08 bil). The Company has indicated that it has been financially self-reliant since 2022. Meanwhile, the increased momentum and interest seen in the Johor property market along with the proposed Johor-Singapore Special Economic Zone will be positive for CGRE, given its still huge undeveloped landbank and unsold inventories in the state. The Company has represented that its total unrestricted cash balances of about RM100 mil as at 31 December 2023 should still adequately meet IMTN profit obligations due this year. The rated sukuk matures in 12 months, i.e. March 2025.
Despite these factors, the lack of a longer track record of cashflow generation stability, high inventory from past aggressive launches and the uncertain status of significant shareholder advances from Country Garden (which rank pari passu with senior unsecured obligations of CGRE) in still-evolving restructuring negotiations remain key rating moderators.
