Citi APAC Credit Trading | Credit Sector Specialists

Market Commentary - Intended for Institutional Clients Only | September 3, 2021

Key takeaways
 We’d be careful on companies with relatively big increase in net debt and / or
minority interests, while in general we remain cautious on the China property sector.
Manjesh Verma
Macro, Non-China HY & IG High yield
Corporates
+852-2501-2355
manjesh.verma@citi.com  China property: More companies made progress in meeting the “three red
lines” as of Jun 2021 compared to Dec 2020 including five more companies
Stella Li moving into the “Green Camp”. This is inline with our expectation as we
China HY Corporates commented earlier that most companies will try to meet the ratios earlier than
+852-2501-2973
stella.li@citi.com the reported “deadline” of Jun 2023. Having said that, we found the total debt
increase of around 30-40% of the companies have actually exceeded the
Jiren Zhang regulatory requirement including some benchmark companies. We’ll monitor
China IG Corporates if these companies will bring down total debt increase to be in compliance,
+852-2501-2178 otherwise there may be long term negative impact if the regulators more
jiren.zhang@citi.com
strictly implement the requirement in our view. Meanwhile, minority interests
of more than 80% of the 45 companies we monitor increased in 1H21, which
has been one of the major means for the companies to improve their “three
red lines” ratios in such short period of time, in our view. We’d be careful on
companies with relatively big increase in net debt and / or relatively big
increase in minority interests especially non-benchmark companies. While we
are relatively more constructive on benchmark names with reasonable level of
net debt and / or minority interests like COGARD, YLLGSP, AGILE, KAISAG,
etc. As we commented earlier, we in general remain cautious on the China
property sector given the consistent tightening environment, weaker than
expected operation and financial performance, as well as potential more
restructuring / stressed situation, while the sector’s valuation currently is
similar to the tight in July. (Stella)
- There were 17 out of the 45 China property HY companies we monitor were
in the “Green Camp” as of Jun 2021 compared to 12 as of Dec 2020 and 2
as of Jun 2020 as shown in the table below. The five companies that turned
“Green” as of Jun 2021 were AGILE, DAFAPG, JINKE, KAISAG, and
SHUION. We saw the biggest improvement in the last 12 months of JINKE
which moved from “Red” to “Green”, as well as AGILE, DAFAPG, HPDLF,
JIAYUA, JNHUIG, PWRLNG, REDSUN, and RONXIN which moved from
“Orange” to “Green”, as well as JIAZHO, LVGEM, SUNAC and XINHUZ
from “Red” to “Yellow”. Among the “Green” companies as of Dec 2020, we
saw “three red lines” ratios of HPDLF, JIAYUA, JNHUIG, LOPGH, ROADKG,
RONXIN and YLLGSP further improved as of Jun 2021 which are credit
supportive, in our view. Among the “Yellow” companies as of Jun 2021, we
think CIFIHG, DEXICN, GRNCH, KWGPRO, RISSUN, and ZHPRHK are
more likely to improve to “Green” in the near future. Having said that, we
also want to highlight that being in the “Green” or “Yellow” Camp does not
mean a company is safe from possible stress situation, as we have seen in
the LGUANG case (ie. in the “Yellow” camp as of Dec 2020 and defaulted in
mid-2021) as we have commented in Citi Asia Credit Outlook 2H21: Edge of
Tomorrow dated Jul 5th.There were still 3 companies were in weaker camps
as of Jun 2021 including GZRFPR which remained as “Red” as well as
EVERRE and GRNLGR which marginally improved to “Orange” from “Red”.
- Despite the good progress of meeting the “three red lines” ratios for the
sector in general, many companies didn’t meet the total debt increase
requirement and they were all “Green” and “Yellow” companies as of Jun
2021. Recall that a property company’s annual total debt increase should be
less than 15% for “Green”, less than 10% for “Orange”, less than 5% for
“Orange” and less than zero for “Red” based on the camp category as of
Jun 2020 as previously widely reported by media. There were 18
companies that had debt increase in the last twelve months more than their
respective allowed limits and there were 14 companies in the last six
months as shown in the table below. Among these companies, CHINSC,

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 Citi APAC Credit Trading | Credit Sector Specialists

CSCHCN, DEXICN, FTHDGR, FUTLAN, GEMDAL, GRNCH, HPDLF,

JINGRU, MOLAND, REDPRO, ROADKG, and SHIMAO didn’t meet the
requirement both in the last twelve months and in the last six months. We’ll
monitor if these companies would be in compliance in the next 6 to 12
months’ time. On the other hand, companies like CENCHI, COGARD,
EVERRE, GRNLGR, GZRFPR, JIAZHO, JINKE, JNHUIG, RISSUN,
SHUION, SUNSHI, TPHL, XINHUZ and YUZHOU managed to reduce total
debt both in the last twelve months and in the last six months.
- We also compare the relatively quality of how the companies meet their
“three red lines” ratios by comparing changes in net debt and minority
interests in 1H21. We consider it a better quality deleverage process for
companies that manage to reduce net debt or maintain relatively stable net
debt level than companies who rely on material increase in minority
interests to meet the “three red lines” ratios. There were 15 out of the 45
China property HY companies we monitor managed to reduce net debt in
1H21. Among them companies like COGARD, EVERRE, GRNLGR,
XINHUZ, and YLLGSP also did not have material increase in minority
interests and had reasonable increase in owner’s equity in 1H21. On the
other hand, there were 11 companies had more than 15% increase of net
debt in 1H21 including CENCHI, CHINSC, DEXICN, FUTLAN which had
more than 30% increase. There were also 17 out of the 45 China property
HY companies we monitor had more than 20% increase of minority interests
in 1H21 including AGILE, HPDLF, JIAYUA, KWGPRO, RISSUN, SUNAC,
and ZHPRHK which had more than 50% increase. We’ll have more
comments later comparing relevant ratios of minority interests, similar to
what we commented in Citi Asia Credit: China property -- minority interests
comparison dated Apr 27th.
- Overall we think benchmark companies like COGARD, YLLGSP, AGILE,
KAISAG have relatively better quality of ratio improvement in our
assessment, while benchmark companies like CHINSC, FUTLAN, GEMDAL,
GRNCH, KWGPRO and PWRLNG had relatively weaker quality of ratio
improvement. It is also worth notice in our view that among the companies
which have been trading relatively stressed recently, CENCHI, FTHDGR,
RISSUN are the ones that have relatively weaker quality of ratio
improvement in our assessment.

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 Citi APAC Credit Trading | Credit Sector Specialists

Jun-20 Dec-20 As of 30 Jun 2021

Adjusted Net Unrestricted Debt change Debt change Net debt MI change
Cam p Cam p liabilities/assets debt/Equity cash / ST debt in 1H21 LTM change in 1H21 in 1H21
AGILE 68.8% 45% 1.18 0.1% -1.1% -11% 75%
CAPG 78.9% 81% 1.17 -3.1% 8.0% -4% -2%
CENCHI 87.2% 93% 1.28 -9.6% -22.1% 498% -5%
CHINSC 69.5% 78% 1.23 8.6% 11.1% 35% -4%
CIFIHG 72.1% 60% 2.67 7.7% 5.2% 9% 30%
COGARD 78.5% 50% 1.93 -0.7% -5.2% -3% 14%
CSCHCN 60.4% 68% 0.22 5.2% 10.6% 11% N/A
DAFAPG 69.0% 56% 1.01 -2.8% 12.1% 4% 18%
DEXICN 73.6% 72% 1.28 25.9% 57.5% 45% 31%
EVERRE 81.0% 99.8% 0.36 -20.2% -31.6% -23% 8%
FTHDGR 72.7% 78% 1.39 9.7% 24.6% 8% 25%
FUTLAN 76.9% 65% 1.59 9.4% 14.4% 39% 13%
GEMDAL 69.4% 70% 1.30 13.2% 15.1% 16% 12%
GRNCH 73.5% 75% 1.87 7.3% 14.4% 15% 19%
GRNLGR 83.4% 122% 1.03 -10.2% -13.1% -8% 7%
GWTH 67.6% 82% 0.22 -2.9% -11.8% -18% -1%
GZRFPR 74.9% 123% 0.25 -10.3% -23.6% -4% 4%
HPDLF 63.2% 75% 1.06 7.6% 30.8% -5% 81%
JIAYUA 62.2% 41% 1.29 7.0% 16.9% 2% 50%
JIAZHO 78.9% 95% 1.03 -4.0% -2.1% 6% 21%
JINGRU 80.1% 81% 1.32 8.3% 20.1% 15% -3%
JINKE 69.3% 84% 1.34 -0.6% -11.6% 10% 4%
JNHUIG 68.3% 68% 1.08 -4.1% -6.7% 14% 9%
KAISAG 69.9% 95% 1.53 1.9% 2.9% 1% -4%
KWGPRO 71.9% 54% 1.81 3.8% -0.6% 1% 65%
LOGPH 69.0% 64% 1.39 6.0% 6.8% 10% 38%
LVGEM 62.4% 79% 0.50 -0.4% 6.4% 6% 5%
MOLAND 83.0% 93% 1.46 16.9% 33.4% 8% 20%
PWRLNG 70.0% 78% 1.09 7.3% 20.5% 17% 19%
REDPRO 77.7% 51% 1.31 14.2% 24.4% 20% 22%
REDSUN 69.4% 54% 1.34 4.9% 5.4% 18% 20%
RISSUN 71.9% 68% 1.02 -6.3% -3.2% -5% 61%
ROADKG 66.7% 62% 1.35 13.7% 25.0% -10% 3%
RONXIN 69.7% 75% 1.09 0.1% 4.4% 14% 6%
SHIMAO 68.3% 50% 1.68 13.3% 15.1% 7% 13%
SHUION 53.8% 48% 1.01 -3.2% -11.9% -4% 1%
SINHLD 73.5% 47% 1.05 -2.6% 1.6% -17% 9%
SUNAC 76.5% 87% 1.11 0.0% -5.2% 6% 53%
SUNSHI 78.8% 92% 1.38 -10.2% -15.9% -4% 0%
TPHL 76.6% 71% 1.90 -10.8% -7.0% 18% 25%
XINHUZ 62.0% 81% 0.75 -16.3% -42.3% -12% -8%
YLLGSP 66.4% 50% 2.75 1.6% -10.5% -18% -1%
YUZHOU 74.0% 80% 1.69 -5.8% -5.5% 9% 46%
ZHLGHD 79.3% 56% 1.22 0.9% 3.4% -4% 17%
ZHPRHK 72.4% 61% 1.72 4.1% 10.2% 5% 53%
Median 71.9% 72% 1.28 0.9% 4.4% 5.6% 13.5%
Note: (1) We mark red for the ratios of companies who did not meet the total debt increase
requirement in the column “Debt change in 1H21” and “Debt change LTM” respectively for
comparison purpose only.
(2) For the “Net debt change in 1H21” column, we mark red for the ratios of companies with more
than 15% increase and we market green for the ratios with decrease for comparison purpose only.
(3) For the “MI change in 1H21” column, we mark red for ratios of companies with more than 20%
increase for comparison purpose only.

Source: Company filings of respective companies, Citi Asia Credit, as of 3rd Sep 2021

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