Hong Kong, January 11, 2013 -- Moody's Investors Service has assigned a first-time Baa3 issuer
rating to Yuexiu Property Company Limited.
Moody's has also assigned a provisional (P)Baa3 rating to the Medium Term
Note program proposed by Yuexiu Property.
At the same time, Moody's has assigned a Baa3 rating to the
first USD senior unsecured notes issued under its MTN program.
The ratings outlook is stable.
RATINGS RATIONALE
"Yuexiu Property's Baa3 issuer rating reflects its standalone credit
profile of Ba1 and the one-notch uplift because of the support
of its parent Guangzhou Yuexiu Holdings Ltd, which is a major state-owned
enterprise of the Guangzhou government," says Franco Leung,
a Moody's Assistant Vice President and Analyst.
Yuexiu Property, which is 49.81% owned by Guangzhou
Yuexiu Holdings Ltd, is one of the core businesses of the group.
It accounted for 66% of the group's revenue and 58%
of its total assets as of 31 December 2011.
Parental financial support is evident from (i) the asset restructuring
which occurred in 2008 when its parent bought from Yuexiu Property a 52.5%
shareholding in its less-than-profitable newspaper business
which reduced its debt of approximately HKD4.55 billion; (ii)
in 2009, the parent bought from Yuexiu Property a 45.3%
in interest in Yuexiu Transport Infrastructure Ltd, enabling Yuexiu
Property to raise capital of HKD1.6 billion; and (iii) the
provision of a shareholder loan, totaling HKD1 billion as of 30
June 2012, provided further support to Yuexiu Property.
"Yuexiu Property's standalone credit of Ba1 reflects its good
track record of developing quality landmark integrated projects in Guangzhou's
prime locations, and its developing investment portfolio,
which offers stable rental income," says Leung, who is also
Moody's lead analyst for Yuexiu Property.
The company has adopted a balanced strategy of a residential plus commercial
development model. Its residential development provides the cash
flow and profit for it to build up an investment property portfolio which
includes premium property, such as the Guangzhou IFC, a premium
commercial property located in the heart of Guangzhou's new central
business district.
As of 30 June 2012, the company had 438,200 square meters
of commercial investment property which offer an annual gross rental of
about RMB500 million. This amount covers about 40% of its
cash interest expenses. Moody's expects the coverage will
improve over time as more investment properties are completed.
"Moody's, when assigning the rating, has also
considered the parent's support for its operations,"
adds Leung.
As part of a municipal government-owned property company,
Yuexiu Property benefits from a good understanding of urban development
in Guangzhou and has secured good projects. The development of
Guangzhou IFC is evidence of the advantages it commands over private developers.
"In addition, Yuexiu Property can leverage its state-owned
enterprise background and has good access to the bank and capital markets,"
says Leung.
The company enjoys broad banking relationships in Hong Kong and its offshore
borrowings were around 40% of its total borrowings as of September
2012.
Furthermore, its associate company, 35.14% owned
Yuexiu Real Estate Investment Trust, offers an additional platform
for fund raising and capital recycling, and this factor is another
positive driver for its fundamental Ba1 rating.
On the other hand, Yuexiu Property's standalone credit of
Ba1 rating is constrained by its concentration in the Pearl River Delta
and moderate financial metrics of adjusted debt/capitalization around
46% and EBITDA/interest around 2.6x as at June 2012.
In addition, Yuexiu Property's model entails monetizing assets
to relieve capital invested in its investment properties. There
could be risk in this capital recycling if Yuexiu REIT cannot raise adequate
capital to unload assets from Yuexiu Property due to any adverse developments
in the debt and equity capital markets.
Yuexiu Property has adequate liquidity though it has substantial short-term
debt. Moody's expects the company will be able to refinance
its short-term debt and will improve its debt maturity profile
after it issues longer-term offshore notes.
The stable outlook reflects Moody's expectation that Yuexiu Property
will achieve its business target sales, exercise discipline in its
land acquisitions, continue access to the bank and capital markets,
and monetize its assets through Yuexiu REIT.
Yuexiu Property's rating has considered its operations and expected
financial improvement in the next 2 years. Hence upgrade pressure
in the next 12 -- 18 months appears unlikely.
However, over longer term, upgrade pressure could emerge if
it: (1) successfully establishes significant recurring EBITDA,
which includes a share of EBITDA from Yuexiu REIT, and which covers
1x of its interest expenses; (2) improves its credit metrics --
interest coverage EBITDA/interest above 4.0x -- 4.5x
and debt leverage below 40%.
The rating could be downgraded if: (1) its sales performance fails
to meet its sales targets; (2) its liquidity position weakens,
due to weak sales, aggressive land acquisitions, or an inability
to monetize its assets through Yuexiu REIT.
Credit metrics indicative of downgrade pressure include: (1) adjusted
debt/capitalization above 45%-50%; or (2) adjusted
EBITDA interest coverage below 2.5x by 1H 2014.
The principal methodology used in rating Yuexiu Property 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.
Yuexiu Property Company Limited, formerly known as Guangzhou Investment
Company Limited, was listed on the Hong Kong Stock Exchange in 1992
(stock code: 123). Guangzhou Yuexiu Holdings Limited,
a substantial shareholder of the company, is a state-owned
enterprise under the supervision of the State-owned Assets Supervision
and Administration Commission ("SASAC") of the Guangzhou Municipal
People's Government.
The core business of the company and its subsidiaries is property development
and investment, with a main focus in Guangzhou, and gradually
expanding into the Pearl River Delta, Yangtze River Delta,
Bohai Rim Economic Zone, and Central Region.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
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the lead rating analyst and to the Moody's legal entity that has issued
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Franco Leung
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.)
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Gary Lau
MD - Corporate Finance
Corporate Finance Group
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Releasing Office:
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Moody's assigns first-time Baa3 to Yuexiu Property; outlook stable
