RPT-Fitch: No Rating Impact on Lifestyle from Property Spin-off

Tue Sep 10, 2013 4:14am EDT

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Sept 10 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings says that Lifestyle International Holdings Limited's (Lifestyle Holdings) 'BBB-' Long-Term Issuer Default Rating with Stable Outlook is not affected by the spin-off of its property assets into Lifestyle Properties Development Limited (Lifestyle Prop). This is because the assets under the spin-off only contributed to 8% of the total asset value of Lifestyle Holdings as of 30 June 2013 and they do not currently generate any revenue to Lifestyle Holdings.

On 1 September 2013, Lifestyle Holdings announced that it expects to list Lifestyle Prop on the Hong Kong Stock Exchange on 12 September 2013. The listing of Lifestyle Prop is a spin-off of Lifestyle Holdings' property assets, including the Harbin Property, the Qingdao Property, the Yifu Land and the 10% interest in Sun Plaza in Shenyang.

The spin-off will not have any revenue impact on Lifestyle Holdings as the spin-off assets are currently either vacant or under construction. The spin-off assets are also not related to Lifestyle Holdings' department store business. In addition, Lifestyle Holdings will not raise any new proceeds from the spin-off, as it does not involve an offering or sale of its existing shares in Lifestyle Prop.

Fitch understands from management that Lifestyle Holdings and Lifestyle Prop shall be financially independent of each other after the spin-off. As of 30 June 2013, there were HKD1bn of outstanding shareholder loans granted by Lifestyle Holdings to Lifestyle Prop. The amount has been fully settled before the spin-off. Currently, there is no outstanding amount due from Lifestyle Prop to Lifestyle Holdings. As Lifestyle Holdings will not provide any financial support to Lifestyle Prop, Fitch believes that the credit ratings of Lifestyle Holdings will not be affected.

The company has confirmed that the target opening of Zhabei mixed-use project in Shanghai in 2016/17 will not be affected by the spin-off. Lifestyle Holdings will offer the retail and office portion to Lifestyle Prop upon project completion, since the focus of Lifestyle Holdings is on the department store business. Although the project's management staff will be transferred from Lifestyle Holdings to Lifestyle Prop after the spin-off, they will continue to oversee the construction of the Zhabei project.

Fitch believes that the spin-off can help Lifestyle Holdings concentrate its financial resources on its department store business. There will also be more flexibility for Lifestyle Holdings to act upon future acquisition opportunities, while Lifestyle Prop can always take up the role of property developer in any mixed-use project. (Bangalore Ratings Team, Hotline: +91 80 6677 2513, Bhanu.priya@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Bhanu.Priya.reuters.com@reuters.net))

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