(The following was released by the rating agency)
HONG KONG, November 08 (Fitch) Fitch Ratings has assigned
China Aoyuan Property Group Limited (Aoyuan) a Long-Term Issuer
Default Rating of 'B+'. The Outlook is Stable.
Fitch has also assigned Aoyuan a senior unsecured debt
rating of 'B+' and its proposed USD senior unsecured bonds an
expected rating of 'B+(EXP)'.
The notes are rated at the same level as Aoyuan's rating as
they represent direct, unconditional, unsecured and
unsubordinated obligations of the company. The final rating of
the proposed notes is contingent upon the receipt of documents
conforming to information already received. Aoyuan's ratings
reflect its small size and limited geographical diversification
relative to companies in the 'BB' rating category as well as its
high asset turnover and low financial leverage.
Over 50% of contracted sales in the first eight months of
2012 were from the Guangdong province where competition remains
intense. The scale of the company's projects is also small
relative to other large scale developers, affecting its
flexibility to phase out sales. These limitations partly explain
the company's lower margins at around 18% relative to peers.
Despite the weak property market in China since mid-2011, Aoyuan
achieved LTM contracted sales/gross debt of 1.07x at end-H112.
Fitch believes the fast turnover, together with its focus on
first-time home buyers, speeds up cash collection and helps the
company ride out the difficult environment in the Chinese
residential property market.
In addition, the company has also relied on commercial
development to boost sales during the downturn in residential
property, with the former accounting for around half of
contracted sales in H112. Aoyuan's leverage, as measured by net
debt/adjusted inventory, was low at 6% at end-H112, and Fitch
expects the ratio will remain healthy at around 30%, even after
increasing debt to launch new projects. This is the main driver
of the Stable Outlook.
What could trigger a rating action?
Negative: Future developments that may, individually or
collectively, lead to negative rating action include: - A
significant decrease in 2013 contracted sales compared with 2012
contracted sales of CNY5bn or in contracted sales/total debt
below 1.0x on a sustainable basis. - EBITDA margin in 2013
falling to below 15% - Net debt/adjusted net inventory trending
to 40% in a sustainable basis. - Deviating from the current
strategy of fast churn-out and high cash flow turnover business
Positive: Future developments that may, individually or
collectively, lead to positive rating action include:
-Successful execution of expansion strategy for the next two to
three years, where business scale increases substantially, such
that contracted sales increase to over CNY15bn per annum with
improving profitability where EBITDA margin increases to over
25% on a sustained basis