(Repeat for additional subscribers)
March 19 (The following statement was released by the rating agency)
Fitch Ratings says today that China Aoyuan
Property Group Limited's (Aoyuan; B+/Stable) better-than-expected performance in
2013 does not put upward pressure on its ratings, mainly because it relied on
commercial property sales to achieve the results. Fitch views sales of retail
shops and offices, which accounted for 26% of Aoyuan's 2013 contracted sales, to
be more volatile than residential property sales.
Aoyuan is a typical small- to mid-sized property developer still in its growth
stage. It took advantage of its low leverage at end-2012 to add more debt,
which, together with proceeds from its IPO and disposal of a Beijing project,
provided enough liquidity to acquire land to improve its business scale. As a
result, contracted sales increased 91% in 2013 to CNY10bn. What sets Aoyuan
apart from peers that also pursued larger scale is that, even as it expanded
quickly, it still maintained healthy leverage, with net debt/adjusted inventory
of 29% at end-2013, and reasonable sales efficiency, with contracted sales/total
debt at 1.1x. This resilience helped to strengthen Aoyuan's credit profile.
However, its stronger financial performance was driven in part by substantial
retail shop sales, which exposes Aoyuan to more volatile commercial property
demand. Upward rating pressure will develop only when Aoyuan is able to
demonstrate it can sustain its profitability and credit metrics with less
reliance on commercial property.
For a more detailed analysis of the rating drivers and sensitivities for Aoyuan,
please refer to the rating action commentary "Fitch Rates Aoyuan's USD Notes at
'B+'", dated 16 Jan 2014, available at www.fitchratings.com.