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Rating Action:

Moody's rates General Shopping Brasil's proposed senior unsecured debt rating at (P)Ba3; outlook stable

25 Oct 2010

First-time rating

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 stable.

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

RATINGS RATIONALE

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 risk.

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 R$398 million.

REGULATORY DISCLOSURES

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.

New York
Griselda Bisono
Analyst
Commercial Real Estate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Philip Kibel
Senior Vice President
Commercial Real Estate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's rates General Shopping Brasil's proposed senior unsecured debt rating at (P)Ba3; outlook stable
No Related Data.
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