(The following was released by the rating agency)
HONG KONG, January 09 (Fitch) Fitch Ratings has assigned
Hong Kong-based Shimao Property Holdings Limited's (Shimao;
'BB'/Stable) seven-year USD800m notes a final rating of 'BB'.
The assignment of the final rating follows the receipt of
documents conforming to information already received. The final
rating is in line with the expected rating assigned on 7 January
The ratings reflect Shimao's concentration in property sales
and industry wide regulatory risks as well as its large and
well-located land bank of 38.8 million sqm (as at 30 June 2012)
across China and the company's proven track record in property
Management's focus on maintaining both ample liquidity and
ready access to various funding channels further supports its
ratings. The company continues to have strong support from over
20 onshore and offshore banks.
Contracted sales increased significantly in 2012 as overall
market conditions improved. Shimao also successfully adjusted
its residential property development mix to focus on first-time
home buyers and upgraded the quality of its housing stock.
Shimao also has one of the highest recurring rental income
streams and the highest rental income-to-EBITDA ratio among
Chinese property companies rated by Fitch. Its recurring rental
income from investment properties is derived from its 64%-owned
Shanghai Shimao unit. Management expects to continue investing
in commercial/retail properties and hotels. Fitch believes the
investment portfolio will offer additional financial flexibility
for the group if required.
The ratings are constrained by the company's concentration
in property sales, which contributed over 90% of its 2011
revenue, as well as by regulatory risks in the Chinese property
The Stable Outlook reflects Fitch's expectation that Shimao
will maintain a stable operating performance and prudent
financial policies in the short- to medium-term. The agency
expects Shimao to continue to meet its contracted sales target
What could trigger a rating action?
Negative: Future developments that may, individually or
collectively, lead to negative rating action include:
-continued weakening of the operating environment, leading
to EBITDA margin erosion below 25%
-aggressive debt-funded expansion leading to net
debt-to-inventory exceeding 45%-50%
-acquiring land above 30% of current average selling price
-Tightening liquidity due to a sustained fall in free cash
flows, or weakened access to financing channels Positive:
Positive rating action is not expected over the next 12 to
18 months due to the industry's highly cyclical and inherently
volatile cash flows, as well as high regulatory risks in the
Chinese property sector.