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Jan 27 (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) USD200m 8.875% senior unsecured notes due 2019 a final rating of â€˜B+â€™ and a recovery rating of 'RR4'€™.
The notes are rated at the same level as CIFI'€™s senior unsecured rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the company. 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 19 January 2014.
KEY RATING DRIVERS
Positive Outlook: CIFI has improved its business scale and achieved CNY15.3bn of contracted sales in 2013 compared with CNY9.5bn in 2012. If it is able to maintain the leverage and liquidity at healthy level, its overall credit profile will be commensurate with a â€˜BB-â€™ profile. Its enlarged size provides advantages including more stable cash flow, cost benefits, and more choices in land purchases.
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 improved 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 first- and second-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-1H13 from 30% at end-2012, although this level of leverage remains moderate compared with that of its peers. Nonetheless, the company's high growth target, together with its issue of offshore bonds in 2013, may limit its ability to deleverage.
Limited EBITDA Margin: Given its high sales turnover business model, Fitch expects the company to achieve EBITDA margins in the high teens over the next two to three years, compared with 20%-25% in 2009, 2010, and 2011.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Sustaining annual contracted sales above CNY15bn (2013 sales: CNY15.3bn)
-Maintaining the current strategy of high cash flow turnover, such that contracted sales/total debt is sustained at over 1.3x
-EBITDA margin over 18% on a sustained basis (1H13: 19%)
-Net debt/adjusted inventory falling below 35% on a sustained basis
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