(The following statement was released by the rating agency)
HONG KONG, May 06 (Fitch) Fitch Ratings has published
property developer Jingrui Holdings Limited's (Jingrui)
Long-Term Issuer Default
Rating (IDR) of 'B' with a Stable Outlook and senior unsecured
rating of 'B'.
Fitch has also assigned Jingrui's proposed US dollar senior
unsecured notes an
expected rating of 'B(EXP)'.
The notes are rated at the same level as Jingrui's senior
unsecured rating as
they represent direct, unconditional, unsecured and
of the company. The final rating of the proposed notes is
receipt of documents conforming to information already received.
Jingrui is a pure residential developer targeting first-time
upgraders. It initially developed projects in Shanghai in the
early 2000s, but
later ventured into third-tier cities in Jiangsu and Zhejiang
provinces in 2006.
Currently, its projects are mainly located in second- and
third-tier cities in
the Yangtze River Delta area.
KEY RATING DRIVERS
Fast Churn-Out Lowers Margins: Jingrui adopted the fast
churn-out model in 2013
by starting construction and launching project presales three
months and six
months after land acquisitions respectively. For example, it
the presales of a Hangzhou project 148 days after it purchased
the land. This
model helped Jingrui increase sales by a strong 76% to CNY8.3bn
in 2013. Fitch
expects Jingrui's turnover rate, measured by contracted sales
over total debt,
to rise from 1.1x in 2013 to more than 1.5x in 2014. However,
the fast churn-out
model reduces profit margins, as developers benefit less from
appreciation and have to sell at competitive prices to ensure
rates. Fitch expects Jingrui's gross profit margin to remain low
at 20%-25% in
the next two to three years.
Low Market Penetration: Jingrui currently has between one and
that mostly have less than CNY1bn in annual contracted sales in
each of the 15
cities in Jiangsu and Zhejiang provinces where it has
operations. Fitch believes
that Jingrui could enjoy economies of scale and higher profit
margins if it
concentrates on building its market presence and brand name in a
few of these
High Leverage among Peers: Jingrui's leverage, measured by net
adjusted inventory, has been at high levels in the past few
years. It fell
slightly to 44% at end-2013 after its IPO, from 49% at end-2012.
most of the other residential developers rated 'B' or 'B+' had
40%. Jingrui plans to spend CNY7.5bn on land purchases in 2014,
much more than
the CNY4.5bn cash outflow for land purchases in 2013. As Jingrui
is in the
expansion stage, Fitch expects its leverage to rise to close to
50% in 2014.
Higher-than-expected capex or weaker-than-expected contracted
may drive its leverage further above 50%.
Heavy Cash Outlay: Jingrui has a small landbank of 5.0 million
square metres. As
such, Fitch expects Jingrui to spend significant amounts on land
and project construction in order to support its target of
strong sales growth
over the next few years. Jingrui relies heavily on cash flow
sales and banks' construction loans to finance its operations.
expansion plan may increase the risk of liquidity crunch in
times of a property
market slowdown or liquidity tightening. Jingrui will consider
projects with JV partners to lower its capital outlay.
Sufficient Liquidity to Repay Debt: At end-2013, Jingrui had
cash of CNY3.4bn
and undrawn credit facilities of CNY565m, which should be
sufficient to cover
short-term debt maturing in 2014 of CNY3bn.
Positive: Future developments that may collectively lead to
- Net debt/adjusted inventory sustained below 40% (end-2013:
- EBITDA margin sustained above 18% (2013: 12%); and
- Maintaining its current strategy of fast churn-out model, such
sales/total debt is sustained at over 1.3x (2013: 1.1x).
Negative: Factors that may, individually or collectively, lead
rating action include:
- Net debt/ adjusted inventory sustained above 60%
- EBITDA margin sustained below 15%
- Contracted sales/total debt sustained below 1.0x.
+852 2263 9969
Fitch (Hong Kong) Limited
28th Floor, Two Lippo Centre
89 Queensway, Hong Kong
+ 852 2263 9559
+65 6796 7221
Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935,
Additional information is available at www.fitchratings.com.
Applicable criteria, "Corporate Rating Methodology: Including
and Parent and Subsidiary Linkage", dated 5 August 2013 are
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS
here. IN ADDITION,
ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS,
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE
FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
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
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH