Ronshine China was downgraded to B+ from BB- with a negative outlook by Fitch, reflecting weak profitability due to of high costs for land projects acquired in the past few years and price caps imposed by local governments hurting its average selling price. Fitch notes that Ronshine’s EBITDA margin and return efficiency are low compared with similar rated peers. “Its EBITDA margin, net of land appreciation tax (LAT) and excluding write-down of inventory, dropped to 4.4% in 1H21 from 6.1% in 2020”, they said. The recovery pace in its margins are uncertain and lower than Fitch’s expectations. Ronshine’s non-controlling interest (NCI) accounted for about 65% of total equity, considered high among peers. Fitch said, “This reflects its reliance on capital contributions from non-controlling shareholders, mostly developers, to finance its expansion. This reduces Ronshine’s need for debt funding, but creates the potential for cash leakage and reduces financial flexibility”. On the positive side, Fitch expects leverage (net debt/adjusted inventory, including guarantees provided to JVs) to stay stable at 43%-45% over the next two years. Additionally, Ronshine’s sales growth has been steady and Fitch expects it to rise 3% to RMB 160bn ($24.7bn) in 2021.
Ronshine’s dollar bonds are lower – its 8.95% 2023s are down 0.53 to 81.75.
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