Hong Kong, July 27, 2020 — Moody’s Investors Service has affirmed Sunriver Holding Group Company Limited’s B2 corporate family rating (CFR).

The outlook remains stable.

“The rating affirmation reflects our expectation that Sunriver’s credit metrics will mildly weaken but remain appropriate for its B2 corporate family rating over the next 12-18 months, as the strong property development business will temper weakness in its tourism business,” says Danny Chan, a Moody’s Assistant Vice President and Analyst.

“The company’s adequate liquidity on the back of strong contracted sales growth also supports its rating,” adds Chan.

Sunriver’s B2 CFR reflects the company’s (1) profitable property development business, (2) modestly diversified business operations, including infrastructure construction and tourism, (3) good interest coverage, and (4) adequate liquidity.

On the other hand, Sunriver’s rating is constrained by (1) the relatively small scale of its property business, (2) the execution and financial risks associated with the fast expansion of both its property and non-property businesses, and (3) its modest access to funding and corporate governance because of its private company status.

Moody’s expects Sunriver’s credit metrics to weaken over the next 12-18 months, mainly due to its weak tourism business, which accounted for 16% and 21% of its revenue and gross profits, respectively, in 2019. Its profit margin is also likely to weaken given the expected greater contributions from its low-margin construction business. Nevertheless, the resulting negative impact on the company’s cash flow will be partly offset by the solid performances of its property business.

Moody’s expects the high growth momentum of its property business to continue this year, following 58% year-over-year contracted sales growth to RMB11 billion in 2019. Property development is Sunriver’s largest business segment, contributing approximately 60% and 71% of its total revenue and reported gross profit, respectively, in 2019.

Consequently, Sunriver’s debt leverage, as measured by revenue/adjusted debt, will likely deteriorate mildly to 65%-70% over the next 12-18 months from 76% in 2019. Its interest coverage, as measured by adjusted EBIT/ Interest coverage, should also weaken to 2.5x-3.0x in the next 12-18 months from 3.0x in 2019, driven by an expected lower profit margin.

Moody’s expects that Sunriver’s increasing investment needs for its fast-growing infrastructure construction business over the next one to two years will consume its capital and liquidity. Nevertheless, the company has a track record of using both equity and debt to fund the expansion of its construction business. For instance, it listed its construction arm — Anhui Gourgen Traffic Construction Co., Ltd — in Q4 2019, and Anhui Gourgen on 21 July 2020 announced an approximate RMB1.2 billion proposed share placement.

Sunriver’s liquidity position is adequate, despite its cash to short-term debt coverage of 75% at the end of December 2019.Moody’s estimates its cash balance, together with its operating cash flow, can cover its short-term debt, committed land premiums and dividend payments over the next 12 months.

In terms of environmental, social and governance (ESG) considerations, Moody’s has considered the company’s low corporate transparency and less-developed corporate governance because of its private company status. Furthermore, the company’s ownership is concentrated in Yu Faxiang and his family, who owned 65.3% of the company as of 30 June 2020.

These concerns are partly mitigated by Anhui Gourgen and Zhejiang Sunriver Culture Co., Ltd, the company’s two main subsidiaries in which it owns 54% and 33.4% respectively, and which are listed on and subject to the regulations of the Shanghai Stock Exchange.

The stable rating outlook reflects Moody’s expectation that Sunriver will maintain the healthy growth in its property business, adequate liquidity, and prudent approach toward investing in non-property businesses without substantially increasing its debt.

The rating could be upgraded if (1) Sunriver improves its debt leverage while achieving healthy contracted sales growth and demonstrates prudence in expanding its construction and tourism segments, (2) improves its liquidity by diversifying its funding channels, and (3) strengthens its corporate governance and transparency.

Credit metrics that would indicate a possible upgrade include revenue/adjusted debt above 80%, and adjusted EBIT/interest cover above 2.0x-2.5x on a sustained basis.

The rating could be downgraded in case of a deterioration in Sunriver’s debt leverage or liquidity, such as increased refinancing risk.

Deteriorating credit metrics that could trigger a downgrade include (1) revenue/adjusted debt below 55%-60%, or (2) adjusted EBIT/interest cover below 1.5x on a sustained basis.

The principal methodology used in this rating was Homebuilding And Property Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Founded in 2002, Sunriver Holding Group Company Limited (Sunriver) is a privately owned company, with its headquarters in Hefei, Anhui Province, China.

The company engages in real estate, construction, tourism and cultural businesses, mainly in Anhui Province. It also owns and operates three self-developed tourism projects and a construction company.

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Danny Chan Asst Vice President - Analyst Corporate Finance Group Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Franco Leung Associate Managing Director Corporate Finance Group JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077

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