TEXT-S&P rates Kaisa's proposed sr unsecd notes 'B+' and 'cnBB-'
(The following statement was released by the rating agency)
Jan 02 - Standard & Poor's Ratings Services today assigned its 'B+' long-term issue rating and 'cnBB-' long-term Greater China regional scale rating to a proposed issue of U.S. dollar-denominated senior unsecured notes by Kaisa Group Holdings Ltd. (B+/Negative/--; cnBB-/--). The rating is subject to our review of the final issuance documentation.
We do not notch down the issue rating from the issuer rating on Kaisa because the company has improved its debt structure by reducing the structural subordination risk on its offshore debt. We expect the company to maintain its priority debt at less than 15% of total assets over the next 12 months. The ratio was below this downgrade threshold in 2010 and 2011.
The rating on Kaisa reflects our view of the company's aggressive debt-funded expansion, weakening profitability, and limited consistency in financial management. The company's increasing operating scale, low-cost land bank, and improving execution in new markets temper the above weaknesses. We expect Kaisa to mainly use proceeds from the proposed notes issue to refinance its existing offshore debt. The issuance will increase the company's borrowings slightly. However, a modest improvement in Kaisa's debt maturity profile offsets the weakness.
The negative outlook on the rating on Kaisa reflects the company's aggressive debt-funded expansion and uncertainty over its property sales for the next 12 months. We expect home purchase restrictions to affect sales of key projects, such as the urban redevelopment projects in Shenzhen. We anticipate that Kaisa's cash flow protection will be strained over the next 12 months, as reflected in credit metrics that are weak for the rating.
RELATED CRITERIA AND RESEARCH
-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008