Fitch Assigns Guangzhou R&F Properties' Notes 'BB(EXP)' Rating

Sun Jan 5, 2014 9:56pm EST

Related Topics

(The following statement was released by the rating agency) HONG KONG, January 05 (Fitch) Fitch Ratings has assigned China-based homebuilder Guangzhou R&F Properties Co. Ltd.'s (R&F; BB/Positive) proposed US dollar-denominated senior unsecured notes an expected rating of 'BB(EXP)'. The notes will be issued by its subsidiary, Trillion Chance Limited. R&F has granted a keepwell deed and a deed of equity interest purchase undertaking to ensure that Trillion Chance has sufficient assets and liquidity to meet its debt obligations. The final rating is contingent on the receipt of final documents conforming to information already received. 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. Given its annual sales of around CNY40bn, the amount due in 2014 may tie up short-term liquidity and curb growth. Superior Margins: Lower land costs and development of commercial projects have yielded stable EBITDA margins of around 35% in the past three years, a level that is at the high end of the range seen at its peers. Fitch expects R&F to maintain the margins 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% of gross floor area is located in first-tier cities and 63% 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 1H13. The diversification helps reduce uncertainties inherent in local policies and local economies. Sustainable Asset Turnover: The company's ratio of contracted sales to total debt was more than 1x over the past three years, even though it incurred substantial debt and market conditions were challenging in 2H11 and 1H12. Fitch expects the ratio to improve further in the next two years as the company adds debt at a slower pace and its contracted sales growth accelerates. Diversified Funding Sources: The company benefits from diversified funding channels, which ensure it has 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-1H13. While this is at the high-end of the range seen at 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 metrics 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. RATING SENSITIVITIES 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 at above 30% on a sustained basis -Net debt/adjusted inventory sustained below 40% -Contracted sales/total 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. 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: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, "Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage", dated 5 August 2013 are available at www.fitchratings.com Related Research "Rating Chinese Homebuilders", dated 15 October 2012 Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage 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.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.