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Global Credit Research - 06 Oct 2010
Hong Kong, October 06, 2010 -- Moody's Investors Service has assigned a first-time Ba3 corporate
family rating to Central China Real Estate Ltd ("Central China").
At the same time, Moody's has assigned a provisional (P)B1
rating to its proposed USD senior unsecured bond issue.
The outlook for the ratings is stable.
The proceeds from the proposed bonds will be used to fund new land acquisitions
and general corporate purposes.
The provisional rating status of the bond rating will be removed after
Central China has completed the USD bond issuance.
"Central China's Ba3 corporate family rating reflects its
leading market position and very long operating track record of 18 years
in Henan province, China," says Kaven Tsang, a
Moody's Assistant Vice President and Analyst.
"Moody's notes that property markets in Henan have been relatively
stable with demand for housing growing. The lower volatility in
prices and growth in prices -- compared with other markets in China
-- mean a lower level of regulatory risk exposure,
which supports the rating," adds Tsang, also Moody's
lead analyst for Central China.
"Further, Central China's Ba3 rating reflects the higher
predictability of its performance relative to its property peers,"
"Central China has demonstrated some operating stability,
given its strategy of focusing on projects within a geography where it
has established its brand, and its discipline in land acquisitions,"
The Ba3 rating also considers Capitaland's involvement in Central
China, with a 27% ownership holding and its two seats on
the board; a situation which would help strengthen corporate governance
and risk control.
On the other hand its geographical concentration in a province with a
developing economy exposes it to constraints in bank credit availability
which, in turn, could slow sales. Such a weakness constrains
In addition, while Central China has over 20 projects under development
that can partly spread its sales risk, its size in terms of revenue
and capital base remain small relative to its peers, and this constrains
its ratings and weakly positions it in the Ba3 rating level.
Central China's bond rating is notched down to B1 due to the subordination
risk arising from its moderate level of subsidiary debt. Secured
and subsidiary debt (including trust financing) to total assets was 26%
as of 30 June 2010. Moody's expects this ratio will stay
around 20% in the coming 2-3 years.
The stable outlook reflects Moody's expectation that Central China
will have adequate liquidity to fund its projects and debt repayments,
and will remain focused in Henan and its vicinity. At the same
time, it will preserve a disciplined approach to land acquisition.
Upward rating pressure will be limited in the near term. However,
the possibility of an upgrade could emerge over the medium term if Central
China (1) consistently achieves its planned sales; (2) demonstrates
a track record of good financial discipline with respect to management
of liquidity and debt; (3) demonstrates a successful property sales
track record beyond Henan; and (4) broadens its banking relationships.
With respect to its credit metrics, Moody's sees EBITDA/interest
coverage consistently above 4-5x and adjusted leverage below 40-45%
as indications of potential for a rating upgrade.
The rating could be under pressure for a downgrade if Central China (1)
experiences significant sales volatility, and which deviates from
past performance, (2) suffers a material decline in its profit margin,
(3) accelerates expansion that impairs its liquidity position, and/or
increases its debt leverage position materially; and/or (4) undergoes
a material reduction in Capitaland's ownership or board representation.
The potential for a downgrade could be triggered by a decline in balance
sheet cash, or Moody's expectation that Central China's
credit metrics would likely deteriorate -- EBITDA/interest
falling below 2.5-3x and adjusted leverage above 55%
-- on a sustained basis.
The principal methodology used in rating Central China Real Estate Ltd
was 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.
Central China Real Estate Limited ("Central China") is a leading
property developer in the Henan Province, China. Founded
in 1992, it has been listed on the Hong Kong Stock Exchange since
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
for further information.
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 first-time Ba3/(P)B1 ratings to Central China
24/F One Pacific Place
China (Hong Kong S.A.R.)
No Related Data.
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