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Global Credit Research - 15 Jul 2010
Hong Kong, July 15, 2010 -- Moody's Investors Service has assigned a (P)Ba2 corporate family rating
to E-Land Fashion China Holdings, Limited. Moody's
has also assigned a (P)Ba2 senior unsecured rating to E-Land Fashion
China's proposed inaugural US$ bond. The rating outlook
This is the first time that Moody's has assigned ratings to E-Land
Fashion China and the provisional status will be removed upon issuance
of the bond. The bond proceeds will be used for capital expenditure,
general corporate purposes and to a lesser extent, for potential
"The provisional Ba2 ratings reflect E-Land Fashion China's
growing presence in the highly fragmented women's apparel industry
in China, its extensive nationwide sales networks, and robust
profitability," says Chris Park, a Moody's Vice President
and Senior Analyst.
"The rating is also supported by the growing middle class and personal
consumption in China, a favorable fundamental that will fuel ongoing
growth in its key market."
"The ratings, however, are counterbalanced by the company's
moderate scale and significant business volatility due to high 'fashion
risk,' as well as its focus on a narrow product category/consumer
demographic," says Park.
If all of its concession expenses were viewed as operating leases,
E-Land Fashion's expected adjusted debt/EBITDA of mid-4x
and retained cash flow ("RCF")/adjusted debt in the mid-teens
for the next two to three years would be weak for the Ba2 rating.
However, the company's financial leverage is somewhat overstated,
as its concession expenses comprise an element of operating expenses.
Given this and the moderate amount of funded debt at around 1x of EBITDA,
its financial profile positions it solidly at the Ba2 rating level.
E-Land Fashion China is a wholly owned subsidiary of E-Land
World Ltd, which has a weaker credit profile, but the ratings
reflect E-Land Fashion China's standalone credit quality
only. This is because contractual ring-fencing mechanisms
exist to protect E-Land Fashion China from undue cash demands by
The stable outlook reflects Moody's expectations that E-Land Fashion
China will (1) further strengthen its market position and continue to
grow its scale and brand equity in tandem with the fast-growing
women's apparel industry in China and (2) maintain solid liquidity
position, with a significant portion of the bond proceeds to be
retained as a liquidity buffer.
A rating upgrade in the near term is unlikely, given E-Land
Fashion China's moderate scale and the lack of business diversity
outside of the women's apparel market. Upward rating pressure
could emerge over the medium term if the Company can establish a more
solid market position and diversify its business portfolio while improving
its financial profile. This would be characterized by an adjusted
debt/EBITDA of around 3.5-3.8x or less and RCF/adjusted
debt above 17-20%.
The rating could undergo a downgrade due to a persistent decline in the
Company's market position or margins leading to erosion of liquidity
or credit metrics. Ratings could also be downgraded if the Company
significantly increases debt to fund a major acquisition. Quantitatively,
the rating could be downgraded if adjusted debt/EBITDA remains above 5x
or if RCF/adjusted debt declines to less than 12%.
The principal methodologies used to rate E-Land Fashion China are
"Moody's Rating Methodology for Global Retail Industry,"
published in December 2006, and "Moody's Rating Methodology
for Global Apparel Industry," published in May 2010,
available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
E-Land Fashion China is one of the leading women's apparel
companies in China. The company designs, distributes,
and markets six casual wear brands mainly through its directly managed
shops in department stores.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
MD - Corporate Finance
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's assigns E-Land Fashion China first-time (P)Ba2; outlook stable
No Related Data.
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