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Announcement:

Moody's comments on COLI's 1H 2011 results

 The document has been translated in other languages

12 Aug 2011

Hong Kong, August 12, 2011 -- Moody's Investors Service says that China Overseas Land and Investment Limited's ("COLI") first-half 2011 results (January-June) were generally in line with Moody's expectations, and have no immediate impact on the issuer and bond ratings of Baa2. The ratings outlook remains stable.

"COLI reported 24.7% y-o-y growth in turnover to HK$21.88 billion, while its gross profit margin improved to 42.9% from 40.5% a year ago. The favorable results are in line with expectations and are supported by its strong property sales in 2010," says Kaven Tsang, a Moody's AVP/Analyst.

"In the first 7 months of 2011, COLI achieved HK$60.3 billion in contract property sales, progressing well towards its HK$80 billion full-year target. The strong performance was supported by the company's diversified geographic coverage and focus on 2nd and 3rd tier cities, which were less affected by the government's tight regulatory controls in 1H 2011," says Tsang, also Moody's lead analyst for COLI.

COLI's total on-balance sheet debt fell to HK$41.8 billion as of June 2011 from HK$44.5 billion as of December 2010, thereby lowering its adjusted debt/capitalization ratio to 40.7% from 42.2%.

At the same time, the company's cash holding dropped to HK$18.2 billion from HK$32 billion as it funded its land payments as planned.

In 1H 2011, the company spent HK$17.9 billion in land acquisitions (HK$5.6 billion for unpaid land premiums and HK$12.3 billion for new land). This was in line the company's full-year budget to invest HK$33 billion in acquiring land (HK$10 billion for unpaid land premiums and HK$23 billion for new land) to support its planned expansion.

As a result, COLI's adjusted net debt/net capitalization rose to 28.9% from 18.5%. Nevertheless, the net leverage ratio is consistent with Moody's expectation of 25-30% to support the Baa2 ratings.

Meanwhile, COLI's EBITDA interest coverage ratio remained strong at over 12x in 1H 2011 due to strong sales recognition and the low interest rate environment. Moody's expects EBITDA interest coverage will fall to 9-11x in the next two years due to higher borrowings to support business growth and increased interest rates for onshore bank loans.

Moody's foresees that property sales in 2H 2011 will be more challenging, as the governments extends restrictions on home purchases to lower tier cities.

Nevertheless, Moody's expects COLI's strong brand name and broad geographic coverage will better position it against the market slowdown.

Moody's also expects COLI to maintain its financial discipline and prudence, and solid funding access, while pursuing further expansion. Accordingly, it will maintain a healthy liquidity position, as reflected in its stable outlook.

Nevertheless, an upgrade in the near term would be unlikely, given the volatile nature of and high regulatory risks in China's property development sector.

On the other hand, the ratings would face downgrade pressure if 1) there were a significant market downturn, such that COLI's sales performance was much weaker than expected; and/or 2) COLI were to incur a sizable amount of debt, to fund land acquisitions without a corresponding increase in cash flow, such that its adjusted net leverage rose above 30-35% and EBITDA interest coverage declined to below 6-7x.

Furthermore, any signs that COLI's liquidity was weakening, with cash falling below 10% of total assets on a sustained basis, or reduced access to funding, would also pressure the ratings.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The principal methodology used in rating COLI was the Global Homebuilding Industry Methodology published in March 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

China Overseas Land & Investment Limited (COLI), listed on Hong Kong Stock Exchange, is a subsidiary of China State Construction Engineering Corporation Limited (CSCEL, unrated) and one of the largest property developers in China. COLI, together with its associate China Overseas Grand Oceans Group Ltd, currently has an attributable land bank of 37.13 million sqm in gross floor area (GFA) in 30 cities in Mainland China, and Hong Kong and Macau. This land bank can support 4-5 years of development.

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.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's comments on COLI's 1H 2011 results
No Related Data.
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