RPT-Fitch: Sunac Has Sufficient Liquidity for Greentown Stake Acquisition

Fri May 16, 2014 4:57am EDT

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May 16 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings says Sunac China Holdings Limited's (Sunac; BB-/Stable) proposal to acquire up to 30% of Greentown China Holdings Limited's (Greentown) issued shares is not likely to have any impact on the ratings on Sunac, which has sufficient liquidity.

Sunac, a China-based homebuilder, achieved CNY14.2bn of contracted sales in January-April 2014, an increase of 27% from a year earlier, and had CNY16.0bn of cash equivalents and restricted cash at end-2013. It paid out estimated land premiums of less than CNY6.5bn in January-April 2014. In comparison, Hong Kong-listed Greentown's total market capitalisation is around HKD18bn (CNY14.5bn). While cash flow tied up in its joint ventures remains substantial, Fitch expects Sunac has sufficient liquidity to meet the cash outflow to acquire a 30% stake without hurting its credit profile, even if the share price increases following news of the potential acquisition.

The two companies have a positive track record of cooperation, including many joint ventures to develop residential properties around the Yangtze River Delta in China. Therefore, Fitch believes that this transaction is unique and may not necessarily serve as a template for the anticipated consolidation in this sector.

Fitch does not exclude possibility of management turnover and changes in Sunac's business strategy and corporate structure following the acquisition. Substantial changes in these areas could affect the company's business performance and credit profile. Fitch will monitor developments in the potential acquisition and Sunac's business performance after the acquisition. Sunac did not disclose the time line or further details for the proposed acquisition in its announcement on 15 May 2014.

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