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I AGREE
25 Mar 2011
Hong Kong, March 25, 2011 -- Moody's Investors Service has today assigned a provisional (P)Ba3 rating
to Longfor Properties Co. Ltd's proposed bond issuance.
At the same time, Moody's has affirmed Longfor's Ba2 corporate
family rating.
The outlook for both ratings is stable.
The net proceeds from the bond issue will be used to finance existing
and new property projects and general corporate purposes.
The bond's provisional rating status will be removed after Longfor
has completed the issuance of the bonds, and all satisfactory terms
and conditions have been met.
RATINGS RATIONALE
"The proposed bonds are consistent with Longfor's funding plan in
2011 and will improve the company's liquidity and debt maturity profile
against the tight bank credit conditions likely to prevail in China in
2011," says Kaven Tsang, a Moody's AVP/Analyst.
"Longfor's Ba2 corporate family rating continues to reflect its established
market position in China's property market and its fairly diversified
land bank," adds Tsang, also Moody's lead analyst for Longfor.
"The rating further captures Longfor's solid operating track record in
its core markets -- Chongqing, Chengdu, and
Beijing," says Tsang.
"Additionally, Longfor's access to funding is good, which
is critical to maintaining adequate liquidity. Liquidity is key
to operating in China's property market, which is highly sensitive
to regulatory measures," adds Tsang.
"On the other hand, the Ba2 rating is constrained by the company's
fast growth, which results in financial and operating risks,"
says Tsang, adding that "these risks are further escalated by the
stricter implementation of regulatory measures that will likely result
in tighter bank credit and reduced property sales volume in the next 12-18
months."
Longfor's projected credit metrics -- adjusted debt/capitalization
at 45%-50% and EBITDA interest coverage between 5.5-7.5x
over the next two to three years -- position the company
at the Ba2 rating level.
Longfor's bond rating is notched down to Ba3, reflecting structural
and legal subordinations. Its secured and subsidiary debt to total
assets ratio stood at 24.4% as of December 2010.
Moody's expects this ratio will stay around 20-25% in the
coming 2-3 years.
The stable outlook reflects Moody's expectation that Longfor's liquidity,
comprising its cash holdings, operating cash flow, and borrowings,
will be sufficient to fund its current projects.
Upgrade pressure could emerge over the medium term if the company can
(1) successfully implement its business plan and maintain financial discipline;
(2) maintain stable sales growth, with an EBITDA margin between
30%-35% throughout the cycle; and (3) maintain
good liquidity, with a minimum cash balance of no less than 10%-15%
of total assets, as well as access to the offshore bank and debt
markets.
Moody's would consider an upgrade if the company can strengthen its credit
metrics, that is adjusted debt/capitalization below 35%-40%
and EBITDA/interest above 7-8x.
The ratings could be pressured downward if (1) Longfor's sales are materially
weaker than planned; (2) operating cash flow weakens due to over-expansion
of new projects; (3) liquidity deteriorates because of aggressive
land acquisitions; or (4) debt increases substantially.
Moody's would consider adjusted debt/capitalization above 50-55%
or EBITDA/interest under 4-5x as indicators for a downgrade.
Moody's last rating action on Longfor was taken on 2 March 2011,
when Moody's assigned to the company a Ba2 corporate family rating with
a stable outlook.
The principal methodology used in this rating was Moody's Global Homebuilding
Industry published in March 2009.
Longfor was founded in 1994 and listed on the Hong Kong Stock Exchange
in November 2009. It is majority-owned (around 75.8%)
and controlled by its chairwoman -- Madam Wu Yajun --
and her associates. The company is one of the leading developers
in China's residential and commercial properties sector, and has
an attributable land bank of 28.2 million sqm in gross floor area
(GFA) in 13 cities in three major regions in China as of December 31,
2010. It also operates six retail malls in Chongqing and Chengdu.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service 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
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Please see ratings tab on the issuer/entity page on Moodys.com
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of each rating category and the definition of default and recovery.
Hong Kong
Kaven Tsang
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Hong Kong
Peter Choy
Senior Vice President
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Moody's Investors Service Hong Kong Ltd.
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Moody's assigns (P)Ba3 rating to Longfor proposed US$ bond
No Related Data.
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