20210930-招银国际-GZRFPR_–_Capital_commitment_is_even_more_positive_3页_498kb

CMBI Credit Commentary - GZFFRP Summary

Core Content

The document is a credit commentary issued by CMBI Fixed Income Department, analyzing the recent capital commitment from Guangzhou R&F Property (GZRFPR) and its major shareholders. It highlights the implications of this commitment on the company's credit profile and repayment ability.

Main Points

• Capital Commitment Increase:
  Major shareholders of Guangzhou R&F and its parent company have announced a new joint venture (JV) with a total capital commitment of up to RMB10.4bn, significantly higher than the previous RMB6.5bn commitment in September 2021.

• Comparison to Previous Financing:
  This new capital commitment is considered more credit positive than the earlier HKD8bn (RMB6.6bn) shareholders' financing due to the larger size and the form of capital injection rather than loans with maturity.

• Capital Injection Impact:
  The capital injection will increase GZRF's equity base, helping to reduce leverage. According to the company, the net gearing ratio improved to 103% on a pro-forma basis (as of 31 August 2021), down from 129% as of June 2021.

• Minority Interests Increase:
  The capital support is expected to increase GZRFPR's minority interests from RMB2.6bn (3% of total equity) in 1H21 to RMB13bn (13% of total equity) on a pro-forma basis. However, this remains significantly lower than industry peers.

• Repayment Ability Reinforced:
  The capital injection is seen as a reinforcement of near-term repayment ability, which supports the credit rating and outlook for the company.

Key Information

• The capital commitment includes the repayment of GZRFPR 8.875% '21 (USD200mn) and the buy-back of USD12mn and USD13mn of GZRFPR 9.125% '22 and GZRFPR 5.875% '23, respectively.
• The capital injection is structured as a JV investment, not as loans, which implies a longer-term support and reduces the risk of short-term liquidity issues.
• The commentary reiterates the OW (Outperform) call on GZFPR 5.75 22 at 91.
• The report is part of a broader analysis on Evergrande and its potential impact, referencing a report published on 24 September 2021.

Author Information

• Wilson Lu (路伟同)
  Contact: (852) 3761 8918
  Email: wilsonlu@cmbi.com.hk

• Glenn Ko, CFA (高志和)
  Contact: (852) 3657 6235
  Email: glennko@cmbi.com.hk

• Polly Ng (吴宝玲)
  Contact: (852) 3657 6234
  Email: pollyng@cmbi.com.hk

• James Wen (温展俊)
  Contact: (852) 3757 6291
  Email: jameswen@cmbi.com.hk

Disclaimer and Disclosures

• Author Certification:
  The author certifies that the views expressed accurately reflect their personal views and that their compensation is not directly or indirectly related to the content.

• Trading Restrictions:
  The author has not traded in the stock covered in the report within 30 days prior to its release and will not do so within 3 business days after the release.

• Investment Risks:
  There are risks involved in trading securities. Past performance does not guarantee future results. Investors are advised to consult professional financial advisors.

• Distribution Restrictions:
  The report is intended solely for clients of CMBIS and its affiliates. It may not be reproduced, reprinted, sold, redistributed, or published without prior written consent.

• Legal Responsibility:
  CMBIS may have investment banking relationships with the issuers, which could lead to conflicts of interest. Legal responsibility for the contents is limited to required by law.

• Regional Restrictions:

  • United Kingdom: The report is only for persons falling within Article 19(5) of the Financial Services and Markets Act 2000 or High Net Worth Companies.
  • United States: The report is for major US institutional investors only, and not for other persons.
  • Singapore: The report is distributed by CMBI (Singapore) Pte. Limited, an Exempt Financial Adviser regulated by the Monetary Authority of Singapore. It may only be provided to Accredited Investors, Expert Investors, or Institutional Investors.

Conclusion

The capital commitment from Guangzhou R&F and its major shareholders is viewed as a positive development for the company's credit profile. It enhances capital support and improves credit metrics, but the minority interests remain below industry benchmarks, indicating room for further improvement. The commentary reinforces the OW call on GZFPR 5.75 22, highlighting the increased confidence in the company's repayment ability.