Fitch Rates Future Land's Notes Final 'B+'

Wed Apr 24, 2013 1:30am EDT

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(The following statement was released by the rating agency) HONG KONG, April 24 (Fitch) Fitch Ratings has assigned China-based Future Land Development Holdings Limited a Long-Term Local Currency Issuer Default Rating of 'B+' with a Stable Outlook and a local currency senior unsecured rating of 'B+'. The agency has also rated Future Land's senior unsecured CNY1.5bn and 9.75% notes 'B+'. The assignment of the final rating follows the receipt of documents conforming to information already received. The final rating is in line with the expected rating assigned on 15 April 2013. Key Rating Drivers Significant structural subordination: Future Land's cash flow is significantly weakened by the fact that around 80% of its contracted sales in 2012 were generated by its 54%-owned subsidiary Jiangsu Future Land (JFL), and that 62.5% of Future Land's land bank at end-2012 was owned by JFL. The presence of the significant minority interest in JFL structurally restricts Future Land's access to the cash flow of JFL. Limited geographical diversification: Around 87% of its 12.6 million square metre land bank was in the Yangtze River Delta (YRD) at end-2012, exposing the company to uncertainties of local policies and the local economy. Fast sales turnover: Future Land's business profile is supported by its rapid sales turnover; contracted sales/total debt was 1.7x at end-2012. The company standardises its products and targets the mass markets of first-time buyers and homeowners looking to upgrade. Strong market position: Its strong market position in YRD helps the company build relationships with local governments, which serve to facilitate its development activity in the region. This should help maintain its moderate EBITDA margin of 20.5% over the next two to three years. Sound leverage: Net debt/adjusted inventory of the holding company excluding JFL is likely to increase to 35% at end-2013 after the proposed bond issue and subsequent inventory increase from an estimated 17% at end-2012. Fitch expects the leverage to remain healthy as the proposed bonds should speed up repayment of its trust loans, which in turn will decrease its funding cost. Rating Sensitivities Negative: Future developments that may, individually or collectively, lead to negative rating action include: - A significant decrease in contracted sales of the company's business, excluding JFL, in 2013 from the CNY3bn achieved in 2012 - A significant decrease in the contracted sales/ total debt ratio to below 1.0x at the holding company level on a sustained basis - Proportionately consolidated net debt/ adjusted inventory rising above 40% on a sustained basis Positive: No positive rating action is expected over the next 12 months. However, positive rating action may be considered upon - A substantial increase in the scale of the company's business, excluding JFL, with annual contracted sales exceeding CNY10bn - Unrestricted access to JFL's cash flows Contact: Primary Analyst Andy Chang Associate Director +852 2263 9914 28th Floor, Two Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Vanessa Chan Director +852 2263 9559 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Media Relations: Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available at Applicable criteria, "Corporate Rating Methodology", dated 8 August 2012, are available at Related Research "Rating Chinese Homebuilders", dated 15 October 2012 Applicable Criteria and Related Research Corporate Rating Methodology here Rating Chinese Homebuilders here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.