(Repeat for additioinal subscribers)
May 22 (The following statement was released by the rating agency)
Fitch Ratings has assigned Hong Kong-based Nan Fung International Holdings Limited's (Nan
Fung; BBB/Stable) proposed US dollar notes an expected rating of 'BBB(EXP)'. The proposed notes
will be issued by Nan Fung Treasury Limited, a wholly owned subsidiary of Nan Fung. The notes
are unconditionally and irrevocably guaranteed by Nan Fung.
The bonds are rated at the same level as Nan Fung's Issuer Default Rating as
they represent direct, unconditional, unsecured and unsubordinated obligations
of the company. The final rating is contingent on the receipt of final documents
conforming to information already received.
KEY RATING DRIVERS
Established Market Position: Nan Fung has 49 years of experience in developing
residential and commercial properties in Hong Kong. The company has demonstrated
the ability to come through economic cycles, aided by its strong capital
structure that allows operational flexibility in terms of the timing of
investments. Nan Fung's prudence is reflected in its highly liquid financial
profile, low financial leverage and investment property portfolio that has been
funded mainly via internally generated funds.
Sufficient Interest Coverage: Nan Fung's stable recurring income streams are
generated from its investments in investment property, financial investments and
hotel operations. Fitch expects these segments to generate HKD1.4bn-1.6bn in
recurring EBITDA per annum over the next three years. The company's recurring
income interest coverage is expected to stay above 2.5x (2.39x at end-March
2013), which still supports its rating level.
Smaller Operating Scale: Nan Fung's investment property portfolio is small, in
terms of absolute asset size as well as percentage contribution to income,
compared with its higher-rated property peers. This weakness constrains its
rating. Its property portfolio amounted to 2.5 million square feet in Hong Kong
and 1.3 million square feet in China at 31 March 2013 (2.02 million square feet
in total at 31 March 2012).
Ample Liquidity: The company had unpledged cash of HKD9.6bn at end-September
2013, and diversified and sizable liquid financial assets valued at HKD17.7bn at
end-March 2013. This is compared with debts of HKD17.0bn at end-September 2013.
Fitch expects Nan Fung's liquidity will remain robust, after factoring in the
company's development expenditures and capex over the medium term.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- sustained poor execution of Nan Fung's property development projects
- significant weakness in both Hong Kong and China property markets leading to
substantial decline in property prices
- Nan Fung's recurring EBITDA (investment property, dividend and coupon from its
investment portfolio) to gross interest expense (including capitalised
interests) remaining lower than 2x on a sustained basis (end-March 2013: 2.4x
and end-September 2013: 2.2x).
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
- Nan Fung's investment property division contributing a substantial portion to
the company's assets and EBITDA
- Maintaining a strong financial position such that its financial assets
portfolio and cash levels are above total debt
- Nan Fung's investment property EBITDA (rental and management fees) to gross
interest expenses (including capitalised interests) exceeding 2x on a sustained
basis (end-March 2013: 0.7x and end-September 2013: 0.7x)