Pengyuan Credit Rating (Hong Kong)

Chinese Homebuilders and Property Developers China

Ronshine China Real Estate Limited Credit Report

Ratings Overview

Issuer Rating ▪ Pengyuan International has assigned a global scale long-term issuer LT Issuer Credit Rating BB credit rating (LTICR) of ‘BB’ to Ronshine China Holdings Limited (Ronshine). The outlook is stable.

Outlook Stable ▪ Ronshine is a Chinese property developer that primarily engages in the development of mid- to high-end residential properties. Property

development contributed 97% of total revenue in 2018 and the remaining Contents revenue came from construction services, rental income and others. Ronshine’s rating reflects its leading market position in the regional

markets, strong contracted sales, high quality land bank, and improving Business Profile ...... 3 financial profile. On the other hand, Ronshine ’s rating is constrained by Financial Profile ...... 4 its relatively smaller scale and high business concentration in China’s

property market. Liquidity ...... 5

Covenants ...... 5 Rating Outlook Other Consideration ...... 6

▪ The stable outlook for Ronshine reflects Pengyuan International’s Company Background ...... 6 expectation that the Company will keep growing its contracted sales and Peer Comparison ...... 6 land bank while improving its financial profile.

Rating Scores Summary ...... 7 ▪ We would consider downgrading Ronshine’s issuer credit rating if its

credit profile deteriorates substantially, which could be caused 1) Related Criteria ...... 7 leverage increases substantially to a prolonged period; 2) EBITDA margin declines materially with little perspective to recover; 3) noticeable deterioration of operating profile.

▪ We would consider upgrading the Company’s issuer credit rating if its credit profile improves substantially, which could be caused by 1) leverage decreases in a large scale on a sustained basis; 2) EBITDA margin improves significantly and expected to be maintained; 3) Contacts substantial improvement of operating profile.

Primary Analyst Financial Summary

Name Winnie Guo Title Director Table 1: Financial Ratios 2017A 2018A 2019F 2020F 2021F Direct +852 3615 8344 EBITDA Interest Coverage Email [email protected] 0.9x 1.0x 2.6x 2.8x 3.1x Gross Debt/Capitalization 69.5% 64.0% 57.8% 53.1% 50.1%

Net Debt/Adj. Inventory 73.9% 56.6% 46.3% 42.5% 41.5% Secondary Analyst Contracted Sales/Gross Debt 0.5x 0.9x 1.1x 1.3x 1.5x

Name Simon Lee EBITDA Margin 11.3% 16.7% 18.8% 17.7% 18.8% Title Analyst ROIC 4.0% 5.1% 10.1% 9.7% 9.9%

Direct +852 3615 8307 Source: Company, Pengyuan International estimates

Email [email protected]

7 August 2019 Page | 1 RA02020200013

Chinese Homebuilders and Property Developers China

Key Rating Drivers

Credit Strengths ▪ Established market position is expected to be maintained in Western Taiwan Straits Economic Zone and Yangtze River Delta regions. Ronshine is one of the top property developers in the southeast of China, particularly in the city of Fuzhou and Hangzhou. The Company was recognized as the “2018 Best 10 of Development of China Real Estate Developers in Fujian” and ranked among the “China’s Top 23 Most Competitive Listed Real Estate Developments in 2018”. With its strong brand recognition, Ronshine has continuously grown its business scale over the last few years.

▪ We believe the Company had solid sales execution capability. Ronshine has achieved strong growth in contracted sales in the past three years, with total contracted sales growth of 107%, 104% and 143% in 2016, 2017 and 2018 respectively. The Company was ranked at No. 28 in 2018 among all Chinese property developers in terms of attributable contracted sales, which is a noticeable advancement from the No. 36 place in 2017. The strong contracted sales and heathy cash collection generated stable cash inflow to sustain the Company’s expansion. After the peak contracted sales growth in 2018, we expect the expansion pace to slow substantially in 2019 and 2020.

▪ Our assessment shows that Ronshine has a high-quality land bank located across first- and second-tier cities. In our view, Ronshine has a diversified and low-cost land bank, which is sufficient to support its growth and profitability in the next two years. At the end of 2018, Ronshine had 154 projects across 39 cities in China, with total land bank and attributable land bank reaching 25.4 million square meters (sqm) and 12.9 million sqm, respectively. Ronshine's land bank is of high quality, focusing on first- and second-tier cities which together make up 88% of its land bank by value and 82% by gross floor area (GFA) at the end of 2018. The unit cost of the Company’s land bank was RMB 6,356/sqm, only 30% of its contracted sales average selling price at the end of 2018.

▪ Ronshine has been deleveraging and we expect the trend to continue in the next two years. Thanks to lower land acquisition and strong contracted sales, Ronshine has reduced its leverage in 2018, with gross debt decreased 11% and net debt decreased 23% year-on-year. Attributable land acquisition decreased to RMB7 billion in 2018 from RMB34 billion in 2017. We expect the Company’s leverage to further come off in 2019 and 2020 driven by lower land acquisition.

Credit Weaknesses ▪ The Company’s operating scale is relatively smaller than the largest peers in China’s property development industry. Despite the rapid growth in the last few years, Ronshine is still considered a smaller developer when compared to some of the largest peers in China’s property development industry. The Company reported total contracted sales of RMB122 billion and revenue of RMB34 billion in 2018, which is roughly one-fourth and one-tenth of the largest peers in the industry. In addition, the Company’s land bank size is also about one-sixth of the largest peers at the end of 2018.

▪ We consider Ronshine’s business concentration risk is relatively high. Ronshine has all of its revenue generated from China property, with 97% from residential property development. The Company’s financial performances are largely influenced by the cyclicality of Chinese economy and its property market.

7 August 2019 Page | 2 RA02020200013

Chinese Homebuilders and Property Developers China

Table 2: Key Credit Metrics (RMB million) 2017A 2018A 2019F 2020F 2021F Financials and Profitability Revenue 30,341 34,367 61,755 73,803 84,600 EBITDA 3,424 5,746 11,623 13,063 15,863 EBITDA margin 11.3% 16.7% 18.8% 17.7% 18.8% Return on assets (ROA) 3.5% 3.7% 6.0% 6.1% 6.6% Return on invested capital (ROIC) 4.0% 5.1% 9.9% 9.3% 9.6% Cash Flow Measures Funds from operations (FFO) 1,771 3,487 13,303 15,266 19,052 Operating cash flows (OCF) -25,699 10,949 306 -1,709 -1,497 Free cash flow (FCF) -26,450 14,876 3,309 1,515 2,043 Discretionary cash flow (DCF) -26,450 14,876 3,309 1,515 2,043 Capital expenditure 751 -3,926 -3,004 -3,224 -3,539 Balance Sheet Measures Cash and liquid investments 20,534 24,996 29,734 31,489 33,401 Excess cash 17,679 20,985 25,078 26,514 28,186 Total debt 70,134 63,362 65,586 69,586 75,586 Adjusted debt 52,454 42,376 40,508 43,072 47,400 Total capitalization 100,895 98,980 113,374 130,933 150,795 Leverage Measures EBITDA Interest Coverage 0.9x 1.0x 2.6x 2.8x 3.1x Gross Debt/Capitalization 69.5% 64.0% 57.8% 53.1% 50.1% Net Debt/Adj. Inventory 73.9% 56.6% 46.3% 42.5% 41.5% Contracted Sales/Gross Debt 0.5x 0.9x 1.1x 1.3x 1.5x FFO/Cash interest expense 0.4x 0.6x 3.0x 3.2x 3.7x Source: Company, Pengyuan International estimates Business Profile

Leading market position in Fujian Ronshine is well-recognized in the medium to high-end residential property market especially in Fujian and Zhejiang. The Company was recognized as the “2018 Best 10 of Development of China Real Estate Developers in Fujian” and ranked 26th and 22th nationwide on the “Top 50 Real Estate Developers in China in 2017” list and “2018 Best 50 of Development of China Real Estate Developers” list respectively, jointly compiled by China Real Estate Industry Association and China Real Estate Appraisal Centre of Shanghai E-House Real Estate Research Institute. In our sample, Ronshine ranked 23rd according to three-year average attributable contracted sales from 2016 to 2018.

Since 2014, the market shares of Ronshine to the whole China property market have witnessed a continuously increasing trend based on both contracted sales value and GFA sold. By end-2018, Ronshine’s market share is 0.81% and 0.33% respectively by total sales value and total sales GFA sold. We expect Ronshine to maintain its strong sales momentum and gain market shares in the coming few years.

Exhibit 1: Market share of Ronshine by total contracted sales Exhibit 2: Market share of Ronshine by total GFA sold RMB million 000 sqm 140,000 0.9% 6,000 0.35% 0.8% 120,000 5,000 0.30% 0.7% 100,000 0.25% 0.6% 4,000

80,000 0.5% 0.20% 3,000 60,000 0.4% 0.15% 0.3% 2,000 40,000 0.10% 0.2% 1,000 20,000 0.05% 0.1%

0 0.0% 0 0.00% 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Total Contracted Sales Market Share Total GFA Sold Market Share

Source: Company, NBS, Pengyuan International estimates Source: Company, NBS, Pengyuan International estimates

7 August 2019 Page | 3 RA02020200013

Chinese Homebuilders and Property Developers China

High quality land bank

Ronshine has a diversified land bank across China which is sufficient to support its growth in the next two years. At the end of 2018, the Company covered 39 cities with 154 projects. Total land bank and attributable land bank reached 25.4 million sqm and 12.9 million sqm, respectively. Ronshine's land bank is of high quality, focusing on first- and second-tier cities such as Fuzhou, Hangzhou, Shanghai and Xiamen, which together make up 88% of its land bank by value and 82% by gross floor area (GFA) at the end of 2018.

Majority of Ronshine’s projects have privilege locations in the first or second tier cities in China. The prime location has enabled the Company a strong pricing power. Thanks to its strategically located quality land reserves, Ronshine has an attractive property development pipeline which is sufficient to support its continued growth in the near future.

In addition, we believe Ronshine’s land bank cost was low. In 2018, its total contracted sales ASP was RMB21,672/sqm, compared with the consolidated land bank unit costs of RMB6,356/sqm, and the new land acquisition unit costs of RMB3,648/sqm. The low land acquisition cost might partly due to the change of land bank composition, however, a substantial lower acquisition price than contracted sales ASP indicates that Ronshine’s land bank has a competitive profitability.

Exhibit 3: 2018 Consolidated land bank GFA Exhibit 4: 2018 Revenue breakdown by geography

Chengdu- Beijing- East China Pearl River Chongqing Tianjin-Hebei 1% Hangzhou Delta 3% 2% 33% 0.3% Others 34% Northwestern 6% Yangtze River Delta Central China 43% 13%

Fuyang 3% Fuzhou Western Taiwan Zhangzhou 10% Straits 2% 32% Shanghai 18%

Source: Company Source: Company On the other hand, Ronshine’s land bank life declined to 4.6x in 2018 from 7.6x in 2017 caused by faster contracted sales and slower land acquisition. We expect Ronshine’s land bank life will continue to decline in 2019 and 2020 driven by conservative land acquisition and strong contracted sales. However, we expect the Company’s land bank life to remain at around 3x, which is in the healthy range to support the Company’s growth. Financial Profile

Leverage Profile

We consider Ronshine’s financial leverage to be in line with its peers that have the similar operating scales. Thanks to lower land acquisition and strong contracted sales, Ronshine has reduced its leverage in 2018, with gross debt to total capitalization reduced to 64% in 2018 from 70% in 2017, and net debt to adjusted inventory lowered to 57% in 2018 from 74% in 2017. EBTIDA coverage also improved to 1.0x in 2018 from 0.9x in 2017.

As of 30 June 2019, gross debt to total capitalization further reduced to 61%. We expect Ronshine’s leverage to further come off in 2019 and 2020 driven by low land acquisition. Attributable land acquisition decreased to RMB7 billion in 2018 from RMB34 billion in 2017. We estimate Ronshine’s land acquisition to be RMB10 billion in 2019 and increase to RMB14 billion in 2020. Ronshine has strategically participated the primary and secondary land development projects back in 2017. These projects, though require high investments at the initial stage, enable Ronshine to grow its land bank with low costs. We estimate these projects will bring new land size of 1 million sqm in Taiyuan and Zhengzhou each year in 2019 and 2020, with the investments of RMB4.8 billion and RMB4.1 billion in 2019 and 2020.

7 August 2019 Page | 4 RA02020200013

Chinese Homebuilders and Property Developers China

We believe Ronshine’s cash flow variations is low. Ronshine’s operating cash flow turned to positive in 2018, driven by the strong contracted sales and lower land acquisition. We expect Ronshine to continuously report a positive free cash flow throughout 2019-2021 due to the improving profitability, strong contracted sales, and disciplined land acquisition.

In our opinion, Ronshine’s debt structure risk is contained. Thanks to company’s efforts on replacing its short-term debt by long-term debt, the short-term debt to total debt ratio has been decreased to 31% as of 30 June 2019 from 40% in 2018. We expect the Company to further optimize its debt structure and maintain short-term debt to total debt ratio to be 30%-35% in 2019 and 2020.

We believe Ronshine’s interest rate risk is low. At the end of 2018, Ronshine’s floating interest rate debt accounted 12.3% of its total debt. We believe the foreign exchange rate risk is low. According to its 2018 annual results, Ronshine’s borrowings denominated in currencies other than RMB were mainly United States Dollars or Hong Kong Dollars, in the total amount of approximately RMB7,681 million, which accounted for 12% of total reported debt.

Ronshine was expansive in land acquisition from 2016 to 2017 and turned to be conservative since 2018. Management expects to keep its land acquisition to 30-50% of its contracted sales. In addition, Ronshine has adopted a disciplined approach. Ronshine acquired most of its land through government-organized auctions and the listing-for-sale process. The Company doesn’t consider to acquire the distressed property assets, which usually takes longer time to clean or restructure the debt related to those assets. It also acquired land through joint ventures with other property developers and by acquiring equity interests from third-party property developers who already hold land use rights.

Profitability Profile

We believe Ronshine profitability level is higher than its peers with a profitability trend of improving. We believe EBITDA margin and ROIC are proper profitability measures for Chinese property developers and we think EBITDA margin better reflects the property companies’ cost structure and execution capability.

Ronshine’s EBITDA decreased to 11% in 2017, primarily because of the consolidation of non-profitable projects from the acquisition of Hailiang. We expect Ronshine’s EBITDA margin to improve after the restructuring of Hailiang, driven by its favorable pipeline and efficient cost controlling. Ronshine's unit land cost was only 30% of its contracted sales ASP at the end of 2018. Liquidity

We assess Ronshine’s liquidity as moderate. We believe cash flow liquidity ratio better reflects property developers’ liquidity as quick ratio doesn’t consider the inventory which is a big component of land bank for property companies. Ronshine’s cash flow liquidity ratio improved to above 1x since 2017 and its forward cash flow liquidity ratio is 1.66x over the next 12 months if we give 30% credit to its undrawn bank facilities. The Company had credit facility of RMB147 billion at the end of 2018, of which RMB85 billion is unused.

We made the following key assumptions when assessing Ronshine’s liquidity:

▪ Estimated cash and short-term investments of around RMB25.0 billion and RMB29.7 billion in 2019 and 2020 ▪ Projected FFO to be about RMB13.3 billion and RMB15.3 billion in 2019 and 2020 ▪ Projected net working capital outflows of about RMB7.5 billion RMB10.7 billion during 2019 and 2020 ▪ Estimated short-term debt payment of around RMB25.6 billion and RMB 22.8 billion in 2019 and 2020 ▪ Estimated cash interest payment of about RMB4.5 billion and RMB4.8 billion in 2019 and 2020 Covenants

We assess Ronshine’s bond covenants as neutral and the risk of the Company to breach its financial covenants is relatively low in the next 12 months. Under offshore debt covenants, all debt issues share similar covenants, which apply but not limit to below constrains on the Company’s ability, and the ability of certain of its subsidiaries to, among other things:

▪ Incur or guarantee additional indebtedness and issue disqualified or preferred stock; ▪ declare dividends on its capital stock or purchase or redeem capital stock; ▪ make investments or other specified restricted payments;

7 August 2019 Page | 5 RA02020200013

Chinese Homebuilders and Property Developers China

▪ issue or sell capital stock of Restricted Subsidiaries; ▪ guarantee indebtedness of Restricted Subsidiaries; ▪ sell assets; ▪ create liens; ▪ enter into sale and leaseback transactions; ▪ enter into agreements that restrict the Restricted Subsidiaries’ ability to pay dividends, transfer assets or make intercompany loans; ▪ enter into transactions with shareholders or affiliates; and ▪ effect a consolidation or merger.

Under Onshore indebtedness, all debt issues are non-public and related covenants are not disclosed to the public. Other Consideration

We apply one-notch uplift from supplementary analysis as we believe Ronshine’s credit risk profile is better than average credit risk profile of cross-industry peers in the same range. Ronshine’s aggregate competitiveness, such as high-quality land bank and strong brand recognition in development of mid- to high-end residential properties, enables the Company to further strengthen its market position in Western Taiwan Straits Economic Zone and Yangtze River Delta regions in the next few years. Company Background

Founded in 2003 and headquartered in Shanghai, Ronshine engages in the property development business in China. Its residential properties primarily include high-end residential properties and commercial properties such as office buildings, retail shops, and hotels. Property development contributed 97% of total revenue in 2018, followed by 2% of construction services and 1% of commercial properties. In 2018, total contracted sales of Ronshine recorded RMB122 billion, with GFA of 5.6 million sqm. Peer Comparison

We selected eight domestic participants as Ronshine’s peers in this comparison section. We currently have ratings on the following names: Shimao Property Holdings Limited (BBB-/Stable) and Central China Real Estate Limited (BB/Stable). We do not assign ratings to other Ronshine’s selected peers.

Table 3: Ronshine’s Peers YANGO Yango Group Co.,Ltd. (YANGO) was established in 1991. YANGO mainly focused on property development in Greater Fujian region, Yantze River Delta region, Beijing-Tianjin-Hebei region, Pearl River Delta region and other regions in China. YANGO also operates project management, hotel, education management and trading business. The total contracted sales for the first half of 2018 was RMB70 billion. TAHOE Tahoe Group Global Co., Ltd. (TAHOE) was founded in 1992. TAHOE mainly engaged in residential and commercial property development in Beijing-Tianjin-Hebei region, Yantze River Delta region, Pearl River Delta region and major economically developed regions such as Fuzhou and Xiamen in Fujian. TAHOE also started expanding their property development in other second-tier cities. According to Fang.com, the total contracted sales for the first half of 2018 was RMB67 billion. AGLG Agile Group Holdings Ltd. (AGLG) started its property business since 1992, in Guangdong Province. Up to June 2018, the Company had a land bank in 69 cities in China, with total planned GFA of 35.4 million sq.m. Residential property development takes up the majority of revenue 97% of total revenue is generated from property development in 2017. In the first half of 2018, the contracted sales reached RMB 47 billion. CIFI CIFI Holdings (Group) Co. Ltd. (CIFI) is headquartered in Shanghai, engaged in the property development and property investment business. Property development accounts for 95% for total revenue in 2017. The projects cover 53 cities in 4 districts, from Yangtze River Delta, the Pan Bohai Rim, the Central Western Region and the South China Region by June 2018. The total contracted sales for the first half of 2018 was RMB 66 billion. CSCE China SCE Property Holdings ltd. (CSCE) was established in 1996 and headquartered in Shanghai. The Company focused on property development, property investment and property management in the first- and second-tier cities in the Yangtze River Delta Economic Zone, the Bohai Rim Economic Zone, the Pearl River Delta Zone, the West Taiwan Strait Economic Zone and Central Western Region. Property development accounted for 97% of total revenue in 2017. CSCE recorded total contracted sales of RMB21 billion in the first half of 2018. CAYP China Aoyuan Property Group Ltd. (CAYP) was founded in 1996. CAYP focuses on property development, and property management and cultural tourism in Guangdong, Hong Kong and Macau Big Bay Area, with a strategic layout in South China, East China, core region of Central and Western China and Bohai Rim. CAYP recorded total contracted sales of RMB40 billion in the first half of 2018. CIFI CIFI Holdings (Group) Co. Ltd. (CIFI) is headquartered in Shanghai, engaged in the property development and property investment business. Property development accounts for 95% for total revenue in 2017. The projects cover 53 cities in 4 districts, from Yangtze River Delta, the Pan Bohai Rim, the Central Western Region and the South China Region by June 2018. The total contracted sales for the first half of 2018 was RMB 66 billion.

7 August 2019 Page | 6 RA02020200013

Chinese Homebuilders and Property Developers China

YZPC Yuzhou Properties Company Ltd. (YZPC) was established in 1994 with three main business segments of property development, property investment and commercial operations. YZPC focus on West Strait Economic Zone and expand their business to Yangtze River Delta Region and Bohai Rim Region. The total contracted sales recorded RMB 21 billion in the first half of 2018. Source: Pengyuan International estimates Table 3: Ronshine’s Peer Comparison (3-year average 2015-2017) (RMB million) RONS YANGO TAHOE AGLG CIFI CSCE CAYP CCRE SHIMAO Contracted Sales 21,516 52,690 52,153 59,600 34,930 17,993 25,887 19,137 71,980 Revenues 16,376 25,047 19,957 47,097 24,093 13,092 13,505 11,979 62,482 EBITDA 2,295 2,850 2,530 12,854 4,976 3,030 2,523 1,865 14,239 FFO 949 -2,586 -11,379 5,904 1,235 1,837 1,431 1,660 15,079 Net income from cont. operation 1,580 1,570 1,719 3,649 3,256 2,060 1,111 672 6,414 Operating cash flows -17,241 -26,129 -36,740 12,479 -6,628 2,240 -6,401 2,737 -1,207 Capital expenditures -909 -4,309 -12,525 -1,698 -1,518 -911 -1,325 -60 -1,534 Free cash flow (FCF) -16,332 -21,820 -24,215 14,177 -5,110 3,151 -5,076 2,797 327 Discretionary cash flow -16,444 -26,225 -30,931 12,110 -6,091 2,617 -5,652 2,589 -2,271 Cash and short-term investments 13,516 23,019 11,195 22,360 22,081 8,164 15,626 11,201 28,261 Gross Debt 42,204 57,408 65,084 43,206 27,587 17,010 17,956 13,152 76,045 Net Debt 31,688 52,442 76,597 36,866 12,187 11,679 11,164 4,293 52,971 Equity 17,650 19,745 21,246 37,857 20,996 12,476 17,778 7,596 83,352 Ratios Debt to Net Inventory 95% 81% 84% 66% 49% 66% 31% 31% 41% Contracted Sales to Gross Debt 0.6x 0.5x 0.6x 1.2x 1.0x 1.0x 1.0x 1.4x 0.9x Debt/ EBITDA 14.3x 18.2x 29.0x 3.1x 2.5x 4.0x 4.4x 2.4x 3.8x FFO/Debt 4% -4% -16% 15% 8% 15% 13% 41% 28% EBITDA interest coverage 0.8x 0.7x 0.2x 3.7x 2.3x 2.3x 1.4x 1.8x 2.3x Gross Debt/Total Capitalization 70% 77% 78% 53% 61% 57% 58% 64% 47% Operating Cash Flow/ Debt -46% -51% -46% 33% -42% 20% -46% 70% -3% Free Cash Flow/Debt -40% -43% -28% 38% -29% 28% -33% 71% 0% EBITDA margin 17.2% 11.4% 12.7% 26.7% 20.1% 22.8% 18.8% 15.6% 22.6% ROIC 8.1% 4.8% 3.6% 6.6% 11.6% 11.8% 4.5% 7.6% 7.5% ROA 4.9% 3.0% 2.7% 8.4% 7.3% 9.3% 4.1% 4.1% 6.4% Source: Company, Pengyuan International estimates

Rating Scores Summary

Business Profile Moderate Industry and Operation Risk Profile Moderate Macroenvironment Risk Low Financial Profile bb- Preliminary Leverage Profile bb- Cash Flow Variations Neutral Debt Structure and Financial Policy Neutral Financial Volatility Neutral Investment Neutral Final Leverage Profile bb- Indicative Credit Score (ICS) bb- Adjustment Factors Corporate Structure and Governance Neutral Liquidity Moderate Supplementary Analysis Positive Standalone Credit Profile (SACP) bb External Support Parental Support NA Government Support NA Issuer Credit Rating (ICR) BB Related Criteria

General Corporate Rating Criteria (15 March 2019)

Industry Credit Guidelines Chinese Homebuilders and Property Developers (31 August 2018)

Corporate Financial Adjustments and Ratio Definitions (7 May 2018)

7 August 2019 Page | 7 RA02020200013

Chinese Homebuilders and Property Developers China

DISCLAIMER

Pengyuan Credit Rating (Hong Kong) Company Ltd (“Pengyuan International”, “Pengyuan”, “the Company”, “we”, “us”, “our”) publishes credit ratings and reports based on the established methodologies and in compliance with the rating process. For more information on policies, procedures, and methodologies, please refer to the Company’s website www.pyrating.com. The Company reserves the right to amend, change, remove, publish any information on its website without prior notice and at its sole discretion.

All credit ratings and reports are subject to disclaimers and certain limitations. CREDIT RATINGS ARE NOT FINANCIAL OR INVESTMENT ADVICE AND MUST NOT BE CONSIDERED AS A RECOMMENDATION TO BUY, SELL OR HOLD ANY SECURITIES AND DO NOT ADDRESS/REFLECT MARKET VALUE OF ANY SECURITIES. USERS OF CREDIT RATINGS ARE EXPECTED TO BE TRAINED FOR INDEPENDENT ASSESSMENT OF INVESTMENT AND BUSINESS DECISIONS.

CREDIT RATINGS ADDRESS ONLY CREDIT RISK. THE COMPANY DEFINES THE CREDIT RISK AS THE RISK THAT THE RATED ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS MUST NOT BE CONSIDERED AS FACTS OF A SPECIFIC DEFAULT PROBABILITY OR AS A PREDICTIVE MEASURE OF A DEFAULT PROBABILITY. Credit ratings constitute the Company’s forward-looking opinion of the credit rating committee and include predictions about future events which by definition cannot be validated as facts.

For the purpose of rating process the Company obtains sufficient quality factual information from sources believed by the Company to be reliable and accurate. The Company does not perform an audit and undertakes no duty of due diligence or third-party verification of any information it uses during the rating process. The issuer and its advisors are ultimately responsible for the accuracy of the information provided for the rating process.

Users of the Company’s credit ratings should refer to the rating symbols and definitions published on the Company’s website. Credit ratings with the same rating symbol may not fully reflect all small differences in the degrees of risk, because credit ratings are relative measures of the credit risk.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS OR COMPLETENESS OF ANY INFORMATION GIVEN OR MADE BY THE COMPANY IN ANY FORM OR MANNER. In no event shall the Company, its directors, shareholders, employees, representatives be liable to any party for any damages, expenses, fees, or losses in connection with any use of the information published by the Company.

The Company reserves the right to take any rating action for any reasons the Company deems sufficient at any time and in its sole discretion. The publication and maintenance of credit ratings are subject to availability of sufficient information.

The Company may receive compensation for its credit ratings, normally from issuers, underwriters or obligors. The information about the Company’s fee schedule can be provided upon the request.

The Company reserves the right to disseminate its credit ratings and reports through its website, the Company’s social media pages and authorised third parties. No content published by the Company may be modified, reproduced, transferred, distributed or reverse engineered in any form by any means without the prior written consent of the Company.

The Company’s credit ratings and reports are not indented for distribution to, or use by, any person in a jurisdiction where such usage would infringe the law. If in doubt, please consult the relevant regulatory body or professional advisor to ensure compliance with applicable laws and regulations.

7 August 2019 Page | 8 RA02020200013