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Rating Action:

Moody's assigns Baa2 to COLI's proposed USD bonds

Global Credit Research - 06 Feb 2012

Hong Kong, February 06, 2012 -- Moody's Investors Service has assigned a Baa2 rating to the proposed bond issuance of up to USD500 million by China Overseas Finance (Cayman) IV Limited, and guaranteed by China Overseas Land and Investment Limited (COLI).

At the same time, Moody's has affirmed COLI's Baa2 issuer and senior unsecured debt ratings.

The ratings outlook is stable.

The proceeds from the proposed bonds will be used to refinance existing debt, fund new and existing projects, and for other general corporate purposes.

RATINGS RATIONALE

"The proposed bond issue is in line with our expectation that COLI will raise new and longer-term debt to fund its operations and refinance its existing debt," says Kaven Tsang, a Moody's Assistant Vice President and Analyst.

"After the bond issuance, the company's adjusted net debt/capitalization ratio remains consistent with Moody's expectation of 30%-35%, which continues to support its Baa2 rating," adds Tsang, who is also Moody's lead analyst for COLI.

Moreover, the proposed offshore debt has a five-year tenor and will extend COLI's debt maturity profile and boost its liquidity amidst the challenging operating environment that is likely to continue in the next 12 months.

The company's strong sales, which totaled HKD87.1 billion for the full year 2011, continue to support its credit and liquidity profiles.

The Baa2 ratings also reflect COLI's leading market position in China's property sector, including its track record for business execution through the cycle and its strong cash flow.

The ratings outlook is stable, reflecting Moody's expectation that the company will maintain its financial discipline and prudence while pursuing further expansion.

An upgrade in the near term is unlikely, given the volatile nature of China's property development sector and the high regulatory risks associated with it.

On the other hand, the ratings would be downgraded if: (1) there is a significant market downturn, such that COLI's sales performance becomes materially weaker than expected, and (2) it incurs a sizable amount of debt, to fund land acquisitions, such that its adjusted net leverage exceeds 30%-35% and EBITDA interest coverage falls below 6x-7x.

Any signs that the company's liquidity is weakening--to the extent that cash falls below 10% of total assets on a sustained basis--or its access to funding is reduced would also weigh on its ratings.

The principal methodology used in rating COLI was the Global Homebuilding Industry Methodology published in March 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

China Overseas Land & Investment, listed on the Hong Kong Stock Exchange, is a 54.07% owned subsidiary of China State Construction & Engineering Corporation Limited (unrated) and one of the largest property developers in the country. It had an attributable land bank of 37.1 million sqm in gross floor area in 31 cities in mainland China, Hong Kong and Macau that can support four to five years of development.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Kaven Tsang
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Peter Choy
Associate Managing Director
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's assigns Baa2 to COLI's proposed USD bonds
No Related Data.

 

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