OREANDA-NEWS. April 06, 2015. Fitch Ratings says there is no immediate impact on Country Garden Holdings Co. Ltd's (Country Garden; BB/Positive) ratings from Ping An Insurance (Group) Company of China Limited's (Ping An) equity investment in the property developer. However, further strategic and business alliances between the two companies may spur positive rating action.

Country Garden on 1 April 2015 said Ping An will invest HKD6.295bn for a 9.9% stake. There will be no impact on Country Garden's rating if the extent of Ping An's involvement is as an equity investor. However, given Country Garden is on Positive Outlook, positive rating action may be accelerated if the two companies demonstrate deeper strategic and business ties. For example, if Ping An increases involvement in Country Garden's operations and strategic directions; if Ping An extends financial and funding support to Country Garden; or if Country Garden acts as Ping An's property platform in the future.

The Positive Outlook on Country Garden reflects its progress in becoming a nationwide homebuilder and improved financial discipline, which can be seen in its lower leverage and more diversified funding sources. The ratings are supported by its strong execution track record. Its ratio of contracted sales to gross debt averaged 1.5x in the past four years, and was 1.9x in 1H14 and 2.1x in end-2014. Land purchase expenditures have been restricted to within 30% of sales. Country Garden's leverage measured by the net debt to net inventory ratios fluctuated in a narrow range of 31% to 35% in the past four years and was at 30% at end-2014

Country Garden's contracted sales in 2014 increased 21% to CNY128bn, after growth of 123% in 2013. Asset turnover improved, with the ratio of total contracted sales to total debt increasing to 2.1x at end-2014 from 1.2-1.5x in 2010-2012. The growth came at the expense of lower EBITDA margin, which dropped to 17.9% in 2014 from 21.3% in 2013 and 28% in 2010-2012.

For a more detailed analysis of the rating drivers and sensitivities for Country Garden, please refer to the rating action commentary "Fitch Revises Country Garden's Outlook to positive; Affirms BB+", dated 23January 2014, available at www.fitchratings.com.