RPT-Fitch: China Homebuilders Among APAC High-Yield Names Raising Most Debt

Thu Feb 27, 2014 1:44am EST

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Feb 27 (Reuters) - (The following statement was released by the rating agency)

The ten Asia-Pacific high-yield corporates that will see the biggest increase in net debt from the end of 2012 to 2014 will mostly come from the Chinese Homebuilding sector, Fitch Ratings says in a new report published today. In contrast, Natural Resource companies are expected to be the largest net debt shedders.

In the report "Top 10 High-Yield Debt, Cash Flow & Leverage Changes", Fitch forecasts that five of the top 10 high-yield debt raisers (those increasing net debt under our forecasts) over 2012-2014 will be homebuilders, namely Evergrande, Vingroup, China Aoyuan, Guangzhou R&F, and CIFI, and this is due to their rapid land bank expansion to meet increasing demand from urbanisation in China and Vietnam.

The report also examines the Top 10 Cash Flow (operating EBITDAR) "Boosters" and "Dippers", and the Top 10 Leverage "Risers" and "Fallers". The Top 10 Cash Flow Boosters largely belong to either the homebuilding or the non-coal natural resource sectors, including Evergrande and Guangzhou R&F, thus justifying their position on our Top 10 Projected Debt Raisers list. Notably our Top Cash Flow Dippers list, dominated by Taiwan's Acer and Indonesia's Adaro, contains only five companies, as cash flow is forecast to rise for 53 of the 58 names in our portfolio.

A key highlight of the report is a Venn diagram with both Red and Blue Zones. Shimao Property, Fortescue Metals, Panasonic and Vedanta Resources are in the "blue joy zone" of strong cash flow increase and debt paydown, and Fitch has taken positive rating action on the first three during the past 12 months. Acer is the sole company in the "red pain zone" of rapid cash flow decline and rising net debt, and Fitch has notably downgraded Acer by three notches since July 2012.

The bias in our high-yield Top 10 lists for the "Projected" period of 2012-2014 remains in favour of raising debt, with USD18.8bn to be raised versus USD7.3bn to be shed. However, the bias is not as strong as in the "Past" period covering 2009-2012, when USD39.1bn was raised and only USD2.7bn shed. For the overall portfolio of 58 high-yield corporates, we forecast the upward trajectory of aggregate net leverage to reverse in 2014, with leverage falling back to 2.1x on a slowdown in the growth of net debt. Aggregate net leverage increased to 2.5x from 2.1x over 2009 to 2012, as net debt doubled and EBITDAR grew by only 67%.

The publication of Fitch's high-yield Top 10 APAC report follows our initial Top 10 APAC Corporates report published in October 2013. While discussing the October report with investors, there was strong demand to see a version focused on high-yield companies. The previous report was based on our full portfolio of APAC corporates and results were dominated by Chinese state-owned enterprise heavyweights and other large mainly investment-grade Asian conglomerates.

The report is available at www.fitchratings.com or by clicking on the link below.

Link to Fitch Ratings' Report: Top 10 High-Yield Debt, Cash Flow & Leverage Changes

here

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