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Announcement:

Moody's: Wuzhou International's ratings unaffected by additional bond issuance

 The document has been translated in other languages

Global Credit Research - 08 Jan 2014

Hong Kong, January 08, 2014 -- Moody's Investors Service says that an additional bond issuance by Wuzhou International Holdings Limited will not have any impact on its B2 corporate family rating and B3 senior unsecured bond rating.

The ratings outlook remains stable.

The company announced on 8 January that it will issue additional bonds under the same terms and conditions as the existing 13.75% senior notes due 2018 issued in September 2013.

The proceeds of the USD notes issuance will be used to invest in existing and new real estate projects, as well as for general corporate purposes.

"We expect Wuzhou's credit metrics will still be well positioned within its B2 rating range, after this additional bond issuance. This issuance will further improve its liquidity position," says Jiming Zou, a Moody's Assistant Vice President and Analyst.

Wuzhou's B2 corporate family rating reflects (1) the company's competitive position in Wuxi Municipality; (2) the supportive economic environment underpinned by steady economic growth and rising urbanization; and (3) its high profitability as a result of its low-cost land and moderate construction costs.

Wuzhou's robust sales have been aided by strong demand for wholesale and commercial properties in its key market of Wuxi, as well as the absence of purchase restrictions or borrowing constraints imposed by the government against the fast rises in prices in the residential sector.

In addition, Wuzhou's strategy to sell off most of its properties, unlike other commercial property developers, facilitates fast turnover and prompt cash collections, which benefit the maintenance of liquidity and fulfillment of debt repayment schedules.

On the other hand, the rating is constrained by (1) inherently high volatility in its commercial property development business; (2) its short operating history and small scale; and (3) significant execution risks regarding the company's ambitious strategy to expand into areas outside Wuxi.

Wuzhou's high reliance on sales of wholesale and commercial properties suggests relatively high volatility in its business profile. This is because the sales of commercial real estate projects are partly driven by speculative demand, which is affected by the macro economy, investment appetite, and financing availability.

Furthermore, adding to the volatility is the fact that recurring rentals and management income only contribute to 5% of total revenue.

The execution risks associated with its developing commercial projects outside of Wuxi remain high, given Wuzhou's limited track record in these new cities. The company has expanded its market coverage to another 10 cities in 6 provinces, but most of these cities are 3rd or 4th tier with less advanced economies when compared to Wuxi.

The ratings outlook is stable, reflecting Moody's expectation that Wuzhou will continue to achieve growth in its new projects and exhibit no material deterioration in its financial profile. The stable outlook also expects the company continued access to funding by domestic banks.

Upward rating pressure could emerge, if Wuzhou (1) establishes a track record of good sales performance in new locations, and (2) demonstrates a stable financial profile with EBITDA/interest expense above 3.0x; and (3) maintains adequate liquidity.

The rating could be downgraded, if (1) Wuzhou's sales decline as a result of a poor reception to its development projects, or a significant downturn in the regional economies where it operates, (2) EBITDA interest coverage falls below 2.0x, or (3) liquidity deteriorates.

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

Wuzhou is a property developer in China and specializes in the development and operation of wholesale markets and multi-functional commercial complexes. The company was listed on the Hong Kong Stock Exchange in June 2013.

Jiming Zou
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

Gary Lau
MD - Corporate Finance
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: Wuzhou International's ratings unaffected by additional bond issuance
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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