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Rating Action:

Moody's rates B3/Baa2.ar Raghsa USD 100 million proposed notes; outlook stable

 The document has been translated in other languages

Global Credit Research - 03 Dec 2010

This is a first time rating

Buenos Aires, December 03, 2010 -- Moody's Latin America has assigned a first time B3 global scale and Baa2.ar national scale rating to Raghsa's USD 100 million proposed notes and a B3 corporate family rating (Baa2.ar national scale corporate family rating). The rating outlook is stable.

RATINGS RATIONALE

The B3/Baa2.ar ratings reflect Raghsa's strong brand name and position in the local market, good asset quality and its management's solid track record in the industry. The company's high occupancy rates and healthy tenants base also supports the ratings and business model. Other factors supporting the ratings are Raghsa's good credit metrics and low leverage for the rating category.

Key ratings challenges, are Raghsa's small size relative to industry peers, its portfolio concentration in the city of Buenos Aires and historical margin volatility. Raghsa's aggressive growth plans is also a key rating challenge, which is somewhat mitigated by the expected increase in lease revenues, which represent a more stable earnings source.

Raghsa proposes to issue USD 100 million senior unsecured notes with a final maturity in 2016, amortizing 50% on year 2015 and the remaining 50% at final maturity. The notes have various covenants including: limitations on the incurrence of additional debt, guarantees, and restricted payments. The proceeds from the notes will be used to refinance approximately USD 16 million of notes outstanding; USD 21 million of bank loans as well as to fund part of the company's capital expenditure plan, which includes new developments and expansions.

Raghsa is a leading real estate operating company in Argentina, that currently owns three office buildings, comprising 80.146 square meters of leasable area. Moody's ratings incorporate Raghsa's high tenant quality and high portfolio occupancy, mitigated by high tenant concentration with one of its key tenants representing more than 25% of its leases revenues. In addition, Raghsa is a leading developer of top quality residential apartments, under a well known brand name in the real estate industry in Argentina. Raghsa's recent developments in the residential segment were almost completely sold before the construction was finished, bolstered by Le Parc brand name. Advanced payments from customers are usual in the market and have helped Raghsa to fund those developments.

These strengths, however, are mitigated by the company's limited track record as a public company relative to its global peers. Raghsa is a family owned, private company, only considered as public due to the Argentine public offering regime under which it has issued the notes in the past. Although it's expected to continue to be under the public offering regime, corporate governance provisions are also limited due to the family ownership structure.

Raghsa also has an aggressive growth plan and a very large development pipeline in relation to its current assets' portfolio, which may translate into continued earnings volatility and funding risk.

The company's current contractual debt profile is comfortable, although the company will need external financing to develop its current investment plan. The proposed notes will help meet its current investment goal. We note, however, that despite it's the amortizing profile of the proposed notes, the notes will create a challenging debt maturity schedule as Raghsa will have to deal with two large debt payments.

Moody's noted that Raghsa's liquidity and funding have been reliant on internally generated cash as well as bank loans and equity contributions from its main private shareholders. Furthermore, most of Raghsa assets are unencumbered, potentially offering an additional source of financing. However, like most companies in Argentina, Raghsa has no committed credit facilities. Up to now, Raghsa has been able to tap the local capital markets only once, when it issued USD 38 million in local bonds. Moody's acknowledges that the proposed issuance will contribute to increase Raghsa's visibility in the market as well as to fund its growth and development plans.

The stable outlook incorporates Moody's expectation that Raghsa's credit metrics will improve as the company grows organically through its current development pipeline, while maintaining a stable revenue base from its current portfolio leases.

The company's small size, aggressive growth strategy and limited access to alternative sources of funding are challenges to ratings improvement. Expected relatively high leverage -measured as total debt to total assets- also challenges a rating upgrade.

However upward rating momentum could occur should the company continues to make progress in its growth strategy accompanied by material improvements in its debt profile: increase in size closer to US$ 250 million in total assets and weighted debt maturities lower than 25% of total debt.

Moody's noted that a downgrade would likely result from greater than expected margins volatility or from a significant decline on Raghsa's profit margins such that EBITDA margin drops below 35%. Any increase debt or encumbering its portfolio could also prompt a rating downgraded. In particular, if Debt to EBITDA exceeds 6x or if the ratio of debt to gross assets exceeds 90%, the ratings could also be downgraded.

This is the first time Moody's rates Raghsa S.A.

Headquartered in Buenos Aires, RAGHSA S.A. is an Argentinean family owned company, that has been engaged in the construction, development, ownership and leasing of residential and commercial properties mainly located in Buenos Aires, for more than 30 years. As of August, 2010 Raghsa's reported total assets of ARS 628 million (approximately USD 160 million) and equity of ARS 358 (approximately USD 90 million).

The principal methodology used in rating Raghsa S.A. was the Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".ar" for Argentina. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Implementation Guidance published in August 2010 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings."

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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.

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

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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.

Buenos Aires
Daniela Cuan
Vice President - Senior Analyst
Corporate Finance Group
Moody's Latin America, Calificadora de Riesgo
JOURNALISTS: (800) 666 -3506
SUBSCRIBERS: (5411) 4816-2332

New York
Philip Kibel
Senior Vice President
Financial Institutions Group
Moody's Investors Service
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SUBSCRIBERS: 212-553-1653

Moody's Latin America, Calificadora de Riesgo
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Argentina

Moody's rates B3/Baa2.ar Raghsa USD 100 million proposed notes; outlook stable
No Related Data.
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