(The following was released by the rating agency)
HONG KONG, November 20 (Fitch) Fitch Ratings has published China-based Beijing Capital Land Ltd's (BCL) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of 'BB+' respectively. The Outlook is Stable.
The agency has also published BCL's local-currency senior unsecured rating of 'BB+' and its proposed offshore CNY unsubordinated unsecured notes' 'BB+(EXP)' rating. The notes, to be issued by Central Plaza Development Limited (CPD), are to be jointly and severally guaranteed by the subsidiary guarantors. The final ratings are contingent upon the receipt of final documents conforming to information already received.
BCL maintains a company profile consistent with a 'BB' profile but is supported at the 'BB+' rating level by the land incubation strategy from its parent Beijing Capital Group (BCG) and long-term stable strategic alliances with China Development Bank (CDB) and Government of Singapore Investment Corporation (GIC), which provided long term funding to BCL since 2003.
BCL's ratings reflect its benefit from parent BCG, which owns 47.2% of BCL. The incubation land strategy at BCG provides land bank resources for BCL at a low cost. As a result, BCL does not have an active need to replenish its land bank. As of Dec 2011, BCL had a land bank of around 10m sqm gross floor area, including a portion sourced directly or indirectly from BCG. BCL's ratings are also supported by CDB and GIC. CDB has provided over RMB20bn long-term and short-term funding for BCL since 2003. GIC has 8.1% shareholdings of BCL and also invested in 16 joint-venture projects with BCL in six cities at Dec 2011.
BCL has diversified multiple funding channels particularly in debt, such as strong support from domestic banks for bank loans and construction loans, project level joint venture with GIC and access to both onshore and offshore capital markets. At end-2011 BCL had RMB8.35bn in cash (RMB0.38bn restricted cash), with RMB40.8bn unused bank credit facilities at June 2012.
BCL's ratings are constrained by its small scale with contracted sales of RMB11bn in 2011 and a small land bank of 10m sqm. However, BCL has achieved moderate diversification over the years and has 35 projects covering 14 cities across China. Since 1993, BCL has developed 57 projects with the developed area exceeding 16m sqm, covering various property types including residential, office, commercial, hotel and land development
The Stable Outlook reflects Fitch's expectation that BCL will achieve stronger contracted sales in H212 compared with H112. Fitch expects the company to deliver a slight increase of contracted sales for 2012 with more project launches, and continue to focus on meeting its contracted sales target which should lead to stable cash flows and liquidity for 2012.
What could trigger a rating action?
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- An upgrade is unlikely in the short term, given the regulatory risks in the home building industry in China.
- A successful execution of BCL expansion strategy for next three years with contracted sales exceeding RMB30bn-35bn, rise in recurring rental income and improvement in net debt/adj inventory to below 20-25% on a sustained basis would be positive factors for the ratings.
Negative: Future developments that may, individually or collectively, lead to negative rating action include: \
- Unfavourable changes to China's regulation or economy leading to a decline in contracted sales or a decline in EBITDA margin to below 15% or deterioration in net debt/adj inventory leverage to above 35% over a sustained period.
- Any signs of BCL being unable to source a cheap land bank from its parent BCG , and/or weakening relationships with BCL's strategic partners such as CDB and GIC, would put negative pressure on the ratings.