TEXT-S&P Assigns Country Garden Notes 'BB-' And 'cnBB+' Ratings

Wed Jan 2, 2013 9:50pm EST

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(The following was released by the rating agency)

HONG KONG (Standard & Poor's) Jan. 3, 2013--Standard & Poor's Ratings Services today assigned its 'BB-' issue rating and its 'cnBB+' Greater China regional scale rating to a proposed issue of 10-year U.S.-dollar-denominated senior unsecured notes by Country Garden Holdings Co. Ltd. (BB/Stable/--; cnBBB-/--). The ratings are subject to our review of the final issuance documentation. The company will use the proceeds from the proposed issuance to refinance its existing debt and for general corporate purposes.

The issue rating on Country Garden's proposed notes is one notch lower than the corporate credit rating to reflect our opinion that offshore noteholders would be materially disadvantaged, compared with onshore creditors, in the event of default. In our view, the company's ratio of priority borrowings to total assets will remain above our notching threshold of 15% for speculative-grade debt.

The rating on Country Garden, a Chinese real estate developer, reflects the company's sales concentration in Guangdong province and its exposure to market risk in third- and fourth-tier cities where the depth of the market and sensitivity to economic cycles may not support a large supply. The rating also reflects our negative outlook for the Chinese property sector and the continued challenging operating conditions for the next six to 12 months. These risks are tempered by the company's strong track record in Guangdong province, its large scale and low-cost land bank as well as improving execution.

The stable outlook reflects our expectation that Country Garden's sales are likely to remain resilient over the next six to 12 months despite an ongoing market correction in China. We estimate the company's contracted sales at more than 40 billion Chinese renminbi and a moderate growth in total borrowings in the next 12 months. We believe that Country Garden will maintain adequate liquidity while pursuing growth.

RELATED CRITERIA AND RESEARCH

-- Methodology: 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

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