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18 Oct 2010
Hong Kong, October 18, 2010 -- Moody's Investors Service has today assigned a provisional (P)B2 rating
to Glorious Property Holdings Limited's proposed USD senior unsecured
notes. At the same time, Moody's has affirmed Glorious'
B1 corporate family rating. The ratings outlook is negative.
The proceeds from the proposed USD bonds are intended to fund existing
and new property projects, and for general corporate purposes.
The provisional status of the bond rating will be removed after Glorious
has completed the USD bond issue.
"The proposed bond issue is in line with our expectations that Glorious
will have to raise debt to fund its unpaid land payments and development
expenditure," says Kaven Tsang, a Moody's AVP/Analyst.
"While the proposed bond issue could partly fund its near-term
obligations and lengthen its debt maturity profile, Glorious'
liquidity profile remains weak, given material amount of scheduled
debt repayment in 2H 2011, including a RMB1.9 billion loan
related to the Shanghai Bay project, and which is due in December
2011," adds Tsang.
"Glorious achieved RMB5.8 billion of contracted sales in
the first nine months of 2010, but its future cash flow will remain
volatile because a relatively large portion of total sales will be derived
from the Shanghai Bay project. It will require further funding
if sales materially fall short of projections," says Tsang.
Despite these weaknesses, Glorious has a high-quality land
bank and the majority of its projects are located in the major districts
of first-tier cities, such as Shanghai and Beijing.
Its high profit margin also offers some buffer against reduced prices
in a down market.
Adjusted debt/capitalization is projected to rise to around 50-55%,
while EBITDA/interest coverage will be at around 3x, positioning
the company at a B1 rating level in the next two to three years.
Glorious' bond rating is notched down to B2 due to subordination
risk. Secured and subsidiary debt to total assets was 33.4%
as of 30 June 2010. Moody's expects this ratio to stay around
30% after the bond issue.
The negative outlook reflects Glorious' weak liquidity position as a result
of lower-than-expected sales in the first nine months of
2010, and sizable refinancing needs in the next 12-18 months,
against increased regulations on lending to property developers.
Glorious' outlook could revert to stable if the company strengthens its
liquidity profile. This could be accomplished with 1) achievement
of projected sales and 2) arrangement of long-term financing to
address refunding needs. At the same time, the company needs
to maintain debt/capitalization at 50-55% or below.
The rating could be downgraded if Glorious' financial position deteriorates,
which could arise from 1) weaker-than-expected sales performance;
2) aggressive development and/or land acquisitions; and/or 3) a weakened
liquidity position to support its operations.
The credit metrics that Moody's would consider for a rating downgrade
include adjusted debt/capitalization rising beyond 55-60%
and/or EBITDA/interest falling under 2-3x.
The last rating action on Glorious was on 15 June 2010, when Moody's
changed Glorious' outlook to negative from stable.
The principal methodology used in rating Glorious was the Global Homebuilding
Industry rating methodology, published in March 2009. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website (www.Moodys.com).
Glorious Property Holdings Limited is a medium-sized residential
property developer which originated from Shanghai, but has now expanded
to Eastern and Northern China. It has a land bank of around 18.9
million sqm in gross floor area distributed in Shanghai, Beijing,
Tianjin and several second-tier cities in China. Glorious
was listed on the Stock Exchange of Hong Kong in 2009. Its chairman,
the major shareholder, owns 65.01%, and has
other major private businesses.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's Investors Service Hong Kong Ltd.
Moody's assigns (P)B2 to Glorious' USD notes; outlook negative
24/F One Pacific Place
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