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China’s Redco Properties’ long-term and senior unsecured ratings were upgraded by Fitch yesterday to B+ from B. The rating agency highlighted several areas which drove their action:

  • Increased contracted sales: Attributable sales scaled to CNY 21.3bn ($3.3bn) in 2020 from CNY 14.5bn ($2.2bn) in 2019. Fitch expects at least CNY 26bn and CNY30bn ($4bn and $4.6bn) in 2021 and 2022, closer to that of some ‘B+’ category peers due to its fast churn model.
  • Low leverage: They expect Redco’s leverage to stay low, below 35% in 2021 though it shot up last year to 32% from 15% in 2019 due to land acquisition. Leverage above 35% they noted would be considered for a negative rating action.
  • Land bank helping growth: Redco’s land bank is sufficient for ~3 years of attributable sales as per Fitch after boosting their land bank by 20mn sq. metres last year from 15mn and 10mn in the prior two years.
  • Non-Controlling Interests (NCI): Redco’s NCI/total equity was at 46% and they expect it to rise to 50%-55%, above the B+ peer average. Cash from contracted sales and capital contribution from non-controlling shareholders act as a source of financing to expand scale reducing the need for raising debt.

Redco’s dollar bonds were mixed with their 13% 2023s up 0.8 to 102.05, yielding 12.7% while their 8.5% 2021s were down 0.3 to 98.75, yielding 11.6%.

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