KEY RATING DRIVERS
The rating on the guaranteed debentures reflects the credit enhancement provided to investors by the full, unconditional and irrevocable guarantee by RLT's parent, Country Garden Holdings Company Limited (CGH, BBB-/Stable). The guarantee ranks at least pari passu with CGH's unsecured and unsubordinated obligations.
DERIVATION SUMMARY
The rating of RLT's guaranteed debentures is based entirely on the credit profile of the guarantor, CGH, which is a leading homebuilder in China with one of the most well-diversified land banks among its peers, which helps it to sustain sales through business cycles.
CGH has a significantly larger operating scale and greater geographical diversification of cash flows than peers in Thailand such as Thai Beverage Public Company Limited (ThaiBev, BBB-/AA(tha)/Negative), the country's market leader in spirits and beer. ThaiBev's smaller scale is offset by its dominant market position in spirits in Thailand, while the Negative Outlook on its ratings reflects the challenges the company faces in the medium term in reducing its leverage.
CGH has a stronger credit profile than Total Access Communication Public Company Limited (DTAC, BBB/AA(tha)/Negative; Standalone Credit Profile of aa-(tha)), which is the third-largest mobile-phone operator in Thailand. DTAC faces a major challenge to regain market share and stabilise earnings in the medium term due to intense price competition and its inferior network coverage. These risks are counterbalanced by DTAC's low leverage, which supports its Standalone Credit Profile of 'aa-(tha)'. However, the Negative Outlook is attributable to our expectations of an increase in DTAC's financial leverage to above the level consistent with its current rating over the next two to three years due to a large settlement payment over a dispute that was concluded at end-2019. DTAC's 'AA(tha)' National Long-Term Rating reflects a one-notch uplift due to moderate linkages with its parent, Telenor ASA of Norway.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade in CGH's Long-Term Issuer Default Rating.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade in CGH's Long-Term Issuer Default Rating.
A one-notch downgrade in CGH's Long-Term Issuer Default Rating could result in a multiple-notch downgrade to the National Long-Term Rating on RLT's guaranteed debentures.
For CGH's rating, the following sensitivities were outlined by Fitch in our Rating Action Commentary dated 27 September 2019:
Factors that could, individually or collectively, lead to positive rating action/upgrade:
EBITDA margin sustained above 20%Net debt/adjusted inventory ratio sustained below 30%Sustained positive CFO, net of investments in joint ventures (JV)
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Net debt/adjusted inventory ratio above 35% for a sustained periodContinued negative CFO, net of investments in JVs