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Global Credit Research - 25 Oct 2010
New York, October 25, 2010 -- Moody's Investors Service has assigned a first-time rating of (P)Ba3
to the proposed senior unsecured notes of General Shopping Brasil S.A.
("General Shopping") and a Ba3 corporate family rating (A3.br
national scale corporate family rating). The rating outlook is
The following first-time ratings were assigned:
General Shopping Brasil S.A.
-- (P)Ba3 to the proposed senior unsecured notes
-- Ba3/A3.br corporate family rating
General Shopping proposes to issue perpetual non-call five year
senior unsecured notes, under Rules 144A / Reg. S.
The notes will rank pari passu with other unsecured debt. The notes
have various covenants including: limitations on the incurrence
of additional debt, guarantees, and restricted payments.
The company will hedge against foreign exchange risk. The proceeds
will be used to refinance approximately R$100 million in debt as
well as fund part of the company's capital expenditure plan,
which includes developments and expansions.
General Shopping is a leading shopping center company in Brazil and one
of the largest companies in the Brazilian shopping center industry in
terms of total owned and managed GLA. According to Moody's,
General Shopping's Ba3 senior unsecured debt and corporate family
ratings incorporate its experienced and respected management team and
a successful track record of adding value to its portfolio while being
a market leader in operating profitably. Offsetting these credit
positives are the company's aggressive and opportunistic growth
and funding strategy, coupled with its small size relative to its
main competitors."General Shopping's leading low vacancy
rate, which is a result of its focus on class B and C consumers,
coupled with its retail expertise, strong tenant relationships,
tenant diversification and active tenant sales analysis and database were
key to Moody's rating," said Griselda Bisonó,
Analyst of the Commercial Real Estate Finance Group at Moody's.
Additional credit strengths include Brazil's positive macroeconomic
fundamentals, specifically in the B and C socioeconomic classes
where the greatest demand lies, coupled with a diverse portfolio
of good quality properties and established tenant relationships with a
focus on leading retailers. The company's debt profile is
solid and it is expected to remain so. In addition, as a
public company General Shopping must comply with the standards of corporate
governance in the Brazilian stock market as well as other listing standards
set forth by the Comissão de Valores Mobiliários (CVM),
which is the Brazilian equivalent to the SEC. These strengths,
however, are mitigated by the company's limited track record
as a public company relative to its global peers (IPO in July 2007) as
well as high joint venture exposure, which diminishes transparency.
General Shopping also has aggressive growth plans and a very large development
pipeline, which translates into earnings volatility and funding
Moody's noted that General Shopping's liquidity and funding
have been managed prudently with high use of private and public equity.
However, like most companies in Brazil, General Shopping has
no committed line of credit. It has been able to tap highly reliable
and market competitive debt through BNDES (government owned development
bank). Furthermore, unencumbered assets have been affected
by this debt as it encumbers its largest mall by GLA and rental revenues.
Moody's acknowledges that the issuance of senior unsecured debt
should allow the company to comfortably fund its growth and development
plans and create a free cash cushion.
Additionally, General Shopping's revenues have been stable,
based upon its lease and service revenues. All of its leases have
5% annual increases. The rents are also adjusted by an inflation
index and include percentage of sales increases. General Shopping
charges four different services fees in most of its malls. It charges
5% of the retailer's occupancy expense as a management fee
on all of its malls. In all but one mall, the company charges
for parking. The company also manages the distribution and billing
of water and electricity in most of its malls. These have enabled
the company to have consistent healthy EBITDA margins. This healthy
EBITDA margin is somewhat mitigated by net income volatility and its substantial
growth in assets in last three years.
The stable outlook incorporates Moody's expectation that General
Shopping's credit metrics will continue to improve as the company
grows organically through its current development pipeline, while
at least maintaining its operating margins. The outlook also incorporates
General Shopping's position as a leading shopping center company
in Brazil with a diverse, good quality portfolio with stable performance.
Moody's will monitor the General Shopping's opportunistic
investment and growth strategy and the funding of its growth strategy.
The company's aggressive growth and funding strategy, coupled
with its lack of track record as a public company are challenges to ratings
improvement in the medium term. However positive ratings movement
could occur through continued successful progress in its development and
growth strategy accompanied by material improvements in the credit profile:
increase in size closer to US$1 billion in total assets and EBITDA
to interest expense closer at 2X. A downgrade would result from
any significant missteps in its development pipeline or growth plans causing
a 10% or more of reduction in revenues. A material acquisition
that is not financed to reduce leverage in the long term, and or
deterioration in General Shopping's credit profile, which
would cause EBITDA to interest expense to be below current levels of 1.3X
and Debt/EBITDA to be close to 5X will also cause a negative ratings pressure.
This is the first time Moody's rates General Shopping Brasil S.A.
The principal methodology used in rating General Shopping Brasil 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.
General Shopping Brasil S.A. [BOVESPA: GSHP3]
is headquartered in São Paulo, Brazil. General Shopping
is a leading shopping center company in Brazil and one of the largest
companies in the Brazilian shopping center industry in terms of total
owned and managed GLA. The company owns 13 shopping centers in
which it has a proportional interest of 84.3%. These
shopping centers have an aggregate of: 225.4 thousand square
meters of gross leasable area and focuses on serving the class C and B
consumer. At June 30, 2010 General Shopping reported total
assets of approximately R$846 million, and equity of approximately
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.
Commercial Real Estate Finance
Moody's Investors Service
Senior Vice President
Commercial Real Estate Finance
Moody's Investors Service
Moody's Investors Service
Moody's rates General Shopping Brasil's proposed senior unsecured debt rating at (P)Ba3; outlook stable
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