RPT-Fitch rates CIFI's USD notes final 'B+'
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Sept 13 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned Chinese property developer CIFI Holdings (Group) Co. Ltd's (CIFI, 'B+'/Positive) USD225m 12.25% notes due 2018 a final rating of 'B+'.
The notes are issued as a tap to the USD275m 12.25% notes due 2018 issued in April 2013, with the same terms and conditions. The assignment of the final rating follows the receipt of documents conforming to information already received and the final rating is in line with the expected rating assigned on 12 September 2013.
Separately, CIFI has announced its financial results for H113, which are generally in line with Fitch's expectation and therefore have no impact on the ratings.
KEY RATING DRIVERS
Positive outlook: Fitch believes that CIFI is likely to grow to a scale commensurate with a 'BB-' profile within the next 12 months, with contracted sales to rise to over CNY14bn in 2013 (2012: CNY9.5bn), based on its available-for-sale and estimated sell-through (sales/available for sale) ratio. CIFI achieved CNY7.2bn, or 96% yoy growth, in contracted sales in H113.
High sales turnover: CIFI's credit profile has been improving since it standardised its product types and shifted its focus to mass-market housing in 2011. The agency expects this model to result in a rapid rise in sales turnover and contracted sales. CIFI's contracted sales/total debt was 1.1x in 2012, and Fitch estimates the ratio to improve to 1.3x in 2013.
National presence: CIFI has a diversified presence in the Bohai Economic Rim, Yangtze River Delta, and Central Western Region, reducing its exposure to uncertainties inherent in local policies and local economies while providing room to scale up. Fitch expects local demand to continue to be strong and its mass-market strategy to work well in high-tier cities. CIFI had around 86% of its land bank in first- and second-tier cities as of June 2013.
Slower deleveraging: Net debt/adjusted inventory increased to around 36% at end-H113 from 30% at end-2012, which represents moderate leverage compared with its peers. Nonetheless, the company's high growth target, together with further issues of offshore bonds in H213, may limit its ability to deleverage in the next 12 months.
Limited EBITDA margin: Fitch expects the company to achieve EBITDA margins in the high teens over the next two to three years, compared with 20%-25% for the past two years. The focus on mass-market housing also means that operating margins are lower than those of its peers.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
-Delivery of its contracted sales target in 2013
-Maintaining the current strategy of high cash-flow turnover, such that contracted sales/total debt is sustained at over 1.3x
-Maintaining its EBITDA margin at over 18% (H113: 19%)
-Sustaining a net debt/adjusted inventory ratio of below 35%
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
-Failure to meet the above guidelines over the next 12-18 months, which would lead to the Outlook being revised to Stable
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