(The following was released by the rating agency)
-- We believe that Renhe's liquidity could deteriorate more
than we expected following the company's guidance that its
property sales will be significantly lower in 2012.
-- Limited bank funding in a tight credit environment
constrains the liquidity and sales of the Chinese shopping mall
developer and operator, in our opinion. -- We are lowering our
long-term corporate credit rating on Renhe and the rating on its
senior unsecured notes to 'B' from 'B+'.
-- We are placing all the ratings on CreditWatch with
On March 29, 2012, Standard & Poor's Ratings Services
lowered its long-term corporate credit rating and the issue
rating on Renhe Commercial Holdings Co. Ltd. to 'B' from 'B+'.
At the same time, we placed all the ratings, including our
'cnBB-' Greater China scale credit ratings on Renhe and its
senior unsecured notes, on CreditWatch with negative
implications. Renhe is a China-based underground shopping mall
developer and operator.
We lowered the ratings because Renhe's property sales and
liquidity could weaken significantly more than we expected in
2012. Our view reflects the company's announcement with the
release of its 2011 results that it targets property sales for
this year of Chinese renminbi (RMB) 3.0 billion-RMB4.0 billion,
which is 50% lower than our base case. We also expect much lower
cash collection than we previously anticipated for 2012, due to
canceled property sales in 2011. In our opinion, the company has
limited funding channels to restore its financial strength
against a weak property sales outlook.
We believe that Renhe's business model is vulnerable to
tight credit conditions, the company's limited access to bank
borrowings, and generally anemic investment demand. Renhe
doesn't hold land use rights on the underground commercial
properties that it develops. Because of this, the company has
not received meaningful onshore bank credit to fund the
construction of its projects. Further, it provides guarantees to
banks for buyers to obtain loans to purchase its properties.
We placed the ratings on CreditWatch because we believe
Renhe's liquidity could deteriorate to "weak" from "less than
adequate", as defined in our criteria, in 2012. The company
canceled presales of RMB3 billion at its project in Humen,
Dongguan last year. This reduced its 2011 presales to RMB4.0
billion--about 50% lower than our expectation. In addition,
Renhe's collection period for sales proceeds has increased
significantly due to tight bank credit. The company also has
limited flexibility to scale back construction spending on
presold but incomplete projects.
In our view, Renhe's liquidity is "less than adequate". We
expect the company's liquidity sources to cover its uses by
about 1.0x in 2012. However, its liquidity is highly sensitive
to property sales, cash collection, and construction spending.
The company's receivables that are more than six months past due
increased to RMB1,224.7 million at the end of 2011, from RMB12.5
million a year earlier. Renhe has short-term onshore debt of
RMB555.3 million and interest expenses of about RMB800 million
(on both its offshore notes and onshore debt) due in 2012.
We aim to resolve the CreditWatch action within the next
three months. We may lower the rating on Renhe by at least one
notch if we assess that the company's liquidity will deteriorate
to "weak". This means that the company's sources of liquidity
will be lower than its uses over the next 12 months.
Related Criteria And Research
-- Renhe Commercial Holdings Co. Ltd. Ratings Lowered To
'B+' From 'BB-' Due To Weakening Liquidity; Outlook Is Negative,
March 15, 2012
-- Liquidity Descriptors For Global Corporate Issuers, Sept.
-- Key Rating Factors For Chinese Real Estate Developers,
June 2, 2008
-- 2008 Corporate Criteria: Analytical Methodology, April
Downgraded; CreditWatch/Outlook Action
Renhe Commercial Holdings Co. Ltd.
Corporate Credit Rating B/Watch Neg/-- B+/Negative/--
cnBB-/Watch Neg/-- cnBB-/--/--
Senior Unsecured ( B/Watch Neg B+
cnBB-/Watch Neg cnBB-