RPT-Fitch Rates Guangzhou R&F Properties 'BB'; Outlook Positive
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Oct 11 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned Guangzhou R&F Properties Co., Ltd (R&F) a Long-Term Issuer Default Rating of 'BB' with Positive Outlook and a senior unsecured rating of 'BB'.
KEY RATING DRIVERS
Debt Maturing in 2014: The ratings are constrained by refinancing risk, with over CNY12.8bn of the debt maturing in 2014, including CNY8.1bn of bonds and CNY1.4bn of trust loans. The impending maturity may tie up short-term liquidity and curb growth.
Superior Margins: Lower land costs and development of commercial projects have yielded stable and superior EBITDA margins of around 35% in the past three years. Fitch expects the margins to be maintained for the next two years due to sufficient land bank and low land costs.
National Presence: R&F has a well-balanced nationwide land bank, of which 34% (in terms of gross floor area) is located in first-tier cities and 63% is in second-tier cities. There is no over-concentration in any one city and even Guangzhou, where R&F first established its business, only accounted for less than 25% of contracted sales in H113. The diversification helps reduce uncertainties inherent in local policies and local economies.
Sustainable Asset Turnover: The company achieved over 1x of contracted sales/total debt over the past three years despite incurring substantial debt, even during challenging market conditions in H211 and H112. The ratio is expected to improve further in the next two years as debt is added at a slower pace and contracted sales growth accelerates.
Diversified Funding Sources: The company benefits from diversified funding channels that ensure sufficient liquidity for financing development costs, land premium payments and debt obligations. R&F's leverage, as measured by net debt/adjusted inventory, was at 49% at end-H113. While this is at the high-end of its 'BB'-rated peers, Fitch believes that the ratio is likely to trend down as the company increases its asset turnover in the next two years.
Positive Outlook: R&F's credit ratings are likely to improve to be commensurate with a 'BB+' profile within the next 12 months if the company can refinance debt maturing in 2014 with long-term capital, and improve its asset turnover and leverage.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
-Refinancing of bonds and trust loans maturing in 2014 with long-term capital
-EBITDA margin sustained above 30% on a sustained basis
-Net debt/adjusted inventory sustained below 40%
-Contracted sales/gross debt sustained above 1.25x
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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