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10 Jan 2011
Hong Kong, January 10, 2011 -- Moody's Investors Service has assigned a B2 rating to Hopson Development
Company Holdings Limited's proposed USD senior notes.
At the same time, Moody's has affirmed the company's
B1 corporate family rating. The outlook for the rating is stable.
The proceeds from the notes issuance will be used to pay construction
costs, land premiums, and general corporate purposes.
RATINGS RATIONALE
"The issuance of new USD senior notes will help Hopson cover its
committed land payments in the next 12 months," says Jiming
Zou, a Moody's Analyst.
"At the same time, Moody's notes that the new debt will
not increase leverage -- measured by debt/total capitalization
-- above 50%, and so the company will remain
positioned at the B1 level," says Zou.
The B1 rating also reflects Hopson's geographical diversification in four
major cities in China, its well-established market position,
and strong brand equity in Guangdong Province and Beijing.
In addition, the rating is underpinned by the company's solid
track record in large-scale residential developments, good
sales execution in the last three years, and stable revenues at
around RMB10bn per annum.
"However, Hopson's rating is constrained by its aggressive
approach to land acquisitions and the weak state of its financial management
when compared to its peers," adds Zou.
Hopson's projected financial metrics will remain modest for the B1 rating
category, as it continues to raise new debt to fund operations.
Accordingly, it will show expected Debt/Book capitalization in the
range of 40-50%, up from 35% at end-2009,
and EBITDA interest coverage in the range of 2.0-3.0x,
versus 3.1x in 2009.
The B2 senior unsecured bond rating reflects legal and structural subordination
risk. The company's secured and subsidiary debt to total assets
ratio will stay around 25% over the near to medium term,
as it has to rely on onshore borrowing at the PRC subsidiary/project level
to fund its operations and investments.
The stable outlook reflects Moody's expectation that the company will
continue to obtain adequate financing from domestic banks to fund its
operations.
The ratings could be pressured for downgrade if Hopson (1) experiences
declining sales and profit margins due to a significant downturn in China's
property market; (2) pursues further acquisitions, which materially
impair its liquidity position and/or increase debt leverage, such
that EBITDA/interest falls under 2x.
The likelihood of a near-term upgrade appears remote. But,
in the medium term, ratings could be pressured for upgrade if Hopson
can (1) demonstrate improvements in financial management with respect
to liquidity and debt management; (2) show more discipline in its
land acquisitions in terms of quantum and funding arrangements; and
(3) improve its credit metrics, including EBITDA/interest coverage
consistently above 4-5x.
Moody's last rating action with regard to Hopson occurred on May 20,
2010, when Moody's upgraded the company's corporate
family rating to B1 with a stable outlook and its senior unsecured debt
rating to B2.
The principal methodology used in this rating was Global Homebuilding
Industry published in March 2009.
Hopson Development Company Holdings Limited is one of the largest property
developers in China with a land bank of approximately 30 million square
meters in gross floor area. Its principal business interests are
residential developments in four major cities -- Guangzhou,
Beijing, Shanghai, and Tianjin -- and their
surrounding areas.
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parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
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Hong Kong
Jiming Zou
Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Hong Kong
Peter Choy
Senior Vice President
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Moody's assigns B2 rating to Hopson's new USD senior notes
No Related Data.
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