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International Financial Center Property Ltd. -- Moody's affirms ratings of Beijing Capital Land and its subsidiaries; outlooks stable

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Rating Action: Moody's affirms ratings of Beijing Capital Land and its subsidiaries; outlooks stable

Global Credit Research - 19 Aug 2020

Hong Kong, August 19, 2020 -- Moody's Investors Service has affirmed Beijing Capital Land Limited's (BJCL) Ba3 corporate family rating (CFR).

At the same time, Moody's has affirmed the following ratings of BJCL's subsidiaries:

1. The B1 CFR of International Financial Center Property Ltd. (IFC)

2. The provisional (P)B1 backed senior unsecured rating on the medium-term note (MTN) program of Central Plaza Development Ltd. (CPD).

The MTN program is guaranteed by IFC, and supported by keepwell deeds provided by BJCL. Both CPD and IFC are wholly-owned subsidiaries of BJCL.

The outlooks for all abovementioned companies are stable.

"The ratings affirmation reflects our expectation that BJCL's operating performance will remain largely stable," says Kaven Tsang, a Moody's Senior Vice President.

"At the same time, we expect BCG's willingness and ability to provide support to BJCL will remain unchanged," adds Tsang.

RATINGS RATIONALE

BJCL's Ba3 CFR reflects its standalone credit profile and a two-notch uplift, based on Moody's expectation that BJCL will continue to receive strong financial and operating support from BCG in times of need, given its strategic and economic importance to its parent.

BJCL's standalone credit profile considers the company's (1) medium-sized operations, (2) quality land bank in top tier cities, (3) good access to projects with government support, and (4) high debt leverage.

Moody's expects BJCL's contracted sales will stay around RMB80 billion in the next 12-18 months, similar to that in 2019, despite a 17% drop in H1 2020 to RMB34 billion due to the disruption caused by the coronavirus outbreak.

Moody's expects the company will accelerate its sales plan with new launches in Hangzhou, Suzhou, Shanghai, Kunming and Zhengzhou in H2 2020.

BJCL's revenue/adjusted debt should slightly improve to 21%-23% in the next 12-18 months from 2019's 18%, as revenue growth will outpace a mild increase in debt. The latter is a result of the company's scaling back of land acquisitions in an attempt to control its debt leverage.

However, BJCL's EBIT/interest coverage ratio will fall slightly to 1.25x-1.40x in the next 12-18 months from 1.45x in 2019 because a decline in its margin will more than offset the effect of revenue growth. Nevertheless, these credit metrics remain appropriate for BJCL's standalone credit profile.

BCG has an ability to provide support to BJCL, as reflected by its Baa3 issuer rating and Moody's expectation that the company will achieve gradual deleveraging and an improvement in its standalone credit profile in 2021.

The two-notch rating uplift considers BCG's track record of (1) supporting BJCL to secure good-quality projects, particularly in Beijing, (2) asset injections, and (3) financial support, such as guarantees that cover the repayment of BJCL's onshore debt and keepwell deeds provided by BCG to support the MTN program of CPD that is guaranteed by IFC.

BJCL's liquidity is adequate. Moody's expects the company's cash holdings, together with its contracted sales proceeds after deducting basic operating cash flow items, can meet its refinancing needs and committed land payment over the next 12-18 months.

BJCL also has good access to onshore and offshore capital markets, given its state-owned enterprise background.

Moody's also affirmed IFC's B1 CFR.

IFC's B1 CFR reflects its standalone credit strength and a one-notch rating uplift, based on expected financial and operating support from its parent, BJCL and the ultimate parent, BCG, if needed.

IFC's standalone credit strength reflects its small-scale operations, thin capital base, and weak financial metrics.

Moody's assessment of a likely support from BJCL and BCG is based on: (1) BJCL's 100% ownership of IFC, and (2) their track record of providing financial support to IFC.

IFC's liquidity is adequate. Moody's expects the company's cash holdings and operating cash flow will meet its refinancing needs over the next 12-18 months.

When assessing BJCL's governance risk, Moody's has considered the company's (1) majority ownership by BCG, which is under the supervision and monitoring of Beijing Municipal government; and (2) the disclosure requirement and the corporate governance standard under the Corporate Governance Code for companies listed on the Hong Kong Exchange.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

BJCL's stable outlook reflects Moody's expectation that (1) the company's credit metrics will remain largely stable, and (2) the likelihood of support from BCG will remain unchanged over the next 12-18 months

Moody's could upgrade BJCL's rating if (1) BJCL demonstrates stable sales growth, (2) it adopts a more prudent approach to land acquisition, (3) it improves its EBIT/interest coverage above 2.5x, and (4) BCG's standalone ability to provide support to BJCL strengthens.

However, BJCL's rating could come under downward pressure if the company's (1) contracted sales weaken, (2) profit margin declines materially, (3) liquidity position becomes impaired, or (4) financial metrics weaken, with EBIT/interest coverage falling below 1.25x-1.50x on a sustained basis.

A downgrade of BCG or any evidence of weakening support from BCG will also strain BJCL's rating.

IFC's stable outlook reflects Moody's expectation that (1) the company's business profiles will remain stable, and (2) the likelihood of support from BJCL and BCG will remain unchanged over the next 12-18 months.

Moody's could upgrade IFC's rating if (1) it improves its scale and geographic diversification and, in turn, reduces the volatility in its sales and earnings, (2) it improves its financial profile, and (3) BJCL's and BCG's ratings are upgraded.

On the other hand, a downgrade of BJCL's rating will result in a similar downgrade of IFC's rating.

In addition, any evidence of weakening support from BJCL and BCG, or a reduction in the strategic importance of IFC to BJCL and BCG, could be negative for the company's rating.

The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Incorporated in China, Beijing Capital Land Limited (BJCL) is a residential property developer. BJCL was founded in 2002 as the major property arm of its parent, Beijing Capital Group Co., Ltd. (BCG). BJCL listed on the Hong Kong Stock Exchange in 2003. BCG is BJCL's largest shareholder, with an equity interest of 54.47% as of 30 December 2019. The Government of Singapore Investment Corporation is also a major shareholder, with a 4.02% stake in the company as of the same date.

Incorporated in the British Virgin Islands in 2000, International Financial Center Property Ltd. (IFC) is a fully owned subsidiary of BJCL. IFC is an overseas investment holding company that owns property development projects in China.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entities are participating and the rated entities or their agent(s) generally provide Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Kaven Tsang Senior Vice President Corporate Finance Group Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Franco Leung Associate Managing Director Corporate Finance Group JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077

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