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Rating Action:

Moody's downgrades Glorious to B3/Caa1; outlook negative

Global Credit Research - 27 Feb 2012

Approximately US$300 million of debt securities affected

Hong Kong, February 27, 2012 -- Moody's Investors Service has today downgraded Glorious Property Holdings Limited's corporate family rating to B3 from B2.

At the same time, Moody's has downgraded Glorious' bond rating to Caa1 from B3.

The outlook on both ratings is negative.

RATINGS RATIONALE

"The ratings downgrade reflects Moody's increased concern over the weak state of Glorious' financial management. Moody's estimates that the company has a high level of short-term loans at above 55% of its total debt that will mature in 2012, and this situation will in turn raise its near-term refinancing risk at a time when bank financing to the property sector remains tight," says Kaven Tsang, a Moody's AVP/Analyst.

"It also reflects Moody's concern over Glorious' high level of liquidity risk due to its weak cash position, which Moody's estimates to be below 50% of its short-term debt ," adds Tsang.

"In addition, Moody's is concerned that Glorious' ability to achieve a good level of pre-sales in 2012 could be challenging, given that the Chinese government is likely to maintain purchase restrictions which have greatly impacted Shanghai and the Yangtze River Delta, areas in which the company has projects for sale," says Tsang.

Glorious had RMB419 million of property sales in January 2012, down 24% month-on-month or 64% year-on-year, partly because of Chinese New Year holidays in that month.

On the other hand, the B3 corporate family rating continues to reflect Glorious' high-quality land bank which is located in the major districts of first-tier cities, such as Shanghai and Beijing. Its high profit margin also offers some flexibility on pricing in a down-market.

The negative outlook reflects -- as stated -- Moody's concerns that Glorious faces relatively high liquidity risk arising from its maturing debt.

The ratings could be further downgraded if Glorious (1) fails to arrange new funding for its maturing debt; or (2) shows a deterioration in its sales performance or experiences a decline in its profit margins.

An upgrade is unlikely in the near term, given the negative outlook. However, the outlook could return to stable if Glorious (1) can refinance most of its short-term debt ; (2) shows an improvement in its debt maturity profile; and (3) improves its cash position to around 10% of total assets.

At the same time, Moody's would expect the company to maintain (1) EBITDA interest coverage above 2x, and (2) adjusted debt/capitalization under 55-60%.

The principal methodology used in rating Glorious 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.

Glorious Property Holdings Limited is a medium-sized residential property developer based in Shanghai. It has now expanded to eastern and northern China. It has a land bank of around 19.6 million sqm (gross floor area) in Shanghai, Beijing, Tianjin, and several second-tier cities in the Yangtze River Delta and Northeast China. Glorious listed on the Stock Exchange of Hong Kong in 2009. Its chairman, the major shareholder, owns 68.2%, and also has a shipbuilding company listed in Hong Kong.

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 downgrades Glorious to B3/Caa1; outlook negative
No Related Data.

 

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