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Fitch: Future Land's Good Results Do Not Reduce Structural Subordination
August 22, 2014 / 5:42 AM / 3 years ago

Fitch: Future Land's Good Results Do Not Reduce Structural Subordination

(The following statement was released by the rating agency) HONG KONG, August 22 (Fitch) Fitch Ratings, Hong Kong/Singapore, 22 August 2014: Fitch Ratings says today that although Chinese homebuilder Future Land Development Holdings Limited (Future Land; B+/Stable) consolidated financial performance in 1H14 was strong, it was driven mainly by the robust performance at its 58.86%-owned subsidiary, Jiangsu Future Land (JFL). The results do not reduce the structural subordination in Future Land's cash flows, which stems from the dependence on JFL and the presence of significant minority interests in JFL that restrict Future Land's access to the subsidiary's cash flows. The 1H14 results also showed that JFL continued to have a credit profile that is stronger and business scale that is larger than the deconsolidated Future Land excluding JFL. The consolidated Future Land's 27.6% rise in sales in 1H14 from a year earlier and conservative financial management resulted in healthy leverage, with net debt/adjusted inventory of 32%. The consolidated entity also had high asset turnover, with the ratio of contracted sales in the last 12 months to total debt at mid-2014 at 1.6x. The numbers show that the company is one of the top performers in the sector by the different measures in 1H14. Fitch estimates that JFL's contracted sales rose 26.5% to CNY8.0bn in 1H14 from a year earlier and its net debt/adjusted inventory was 27% at mid-2014. For the deconsolidated Future Land that excludes JFL, its contracted sales rose 33.3% to CNY1.7bn and its net debt/adjusted inventory was 41%. The deconsolidated Future Land's sales were driven by the disposal of inventory, which is reflected in the lower asset turnover of 0.6x. Hence, the credit profile of JFL remains much stronger than the deconsolidated Future Land excluding JFL. This and the continued restriction of Future Land's access to JFL's cash mean that structural subordination continues to be the main constraint on Future Land's ratings. Given that JFL and the deconsolidated Future Land are growing at different speeds, Fitch believes that the company may further adjust its corporate structure or business strategy to strengthen operational efficiency. For a more detailed analysis of the rating drivers and sensitivities for Future Land, please refer to the credit update " Future Land Development Holdings Limited ", dated 2 April 2014, available at www.fitchratings.com. Contact: Andy Chang Associate Director +852 2263 9914 Fitch (Hong Kong) Limited 28th Floor, Two Lippo Centre 89 Queensway, Hong Kong Michelle Leong Associate Director +852 2263 9929 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. 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.

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