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Fitch: Vanke's Tie-Ups with Carlyle, Taobao May Support Asset Turnover
September 2, 2014 / 2:15 AM / in 3 years

Fitch: Vanke's Tie-Ups with Carlyle, Taobao May Support Asset Turnover

(The following statement was released by the rating agency) HONG KONG, September 01 (Fitch) Fitch Ratings says today that Chinese homebuilder China Vanke Co., Ltd's (Vanke; BBB+/Stable) plans to team up with private equity firm Carlyle Group and online marketplace Taobao will likely raise the homebuilder's asset turnover and improve its liquidity. Given the fierce competition in China's property market, Fitch will not be surprised if other developers also undertake cross-sector tie-ups to stimulate home sales in the future. Vanke at end-August said it agreed to establish an "asset platform company" that will be 80% owned by Carlyle Asia Investment Advisors Limited (Carlyle) and 20% owned by Vanke. The company plans to sell nine commercial properties to the joint venture, which intends to hold the properties until they are securitised in the future. In addition, both Vanke and Carlyle also plan to set up a company to manage the leasing and operation of the commercial properties. While the agreement is preliminary and not legally binding, the transaction, if it proceeds, will be positive for Vanke's operation and financial management. First, the transaction is likely to release most of the capital tied up in the commercial properties, which would otherwise generate limited cash flows and slow down the homebuilder's overall asset turnover. Second, by cooperating with Carlyle, Vanke would be able to substantially lower its costs for experimenting with and exploring potential business models in commercial properties. Third, Vanke will gain from the capital appreciation once the commercial properties are securitised or listed successfully. Vanke recently also started to cooperate with Taobao to offer discounts to homebuyers who also shop on the biggest online shopping website in China. The discounts range from 5% to 10% per home in general, depending on the project. The company has also initiated and explored other sales channels by cooperating with different online platform operators, like Tencent. While the development of Vanke's online sales channels is still at an early stage and the channels are not used across the whole group, Fitch expects Vanke's savings on its selling, general and administrative (SG&A) expenses to partly make up for the 5%-10% discounts. Vanke's move to set up and explore alternative sales channels also reflects its strategy to prioritise asset turnover over margins. For a more detailed analysis of the rating drivers and sensitivities for Vanke, please refer to the rating action commentary "Fitch Rates China Vanke's USD Notes Final 'BBB+'", dated 6 June 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 Vanessa Chan Director +852 2263 9559 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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