May 16, 2017 / 2:20 AM / 2 months ago

Fitch Rates Logan's Proposed USD Senior Notes 'BB-(EXP)'

13 Min Read

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, May 15 (Fitch) Fitch Ratings has assigned Logan Property Holdings Company Limited's (BB-/Stable) proposed US dollar senior notes a 'BB-(EXP)' expected rating. The notes are rated at the same level as Logan's senior unsecured rating because they constitute its direct and senior unsecured obligations. The final rating is subject to the receipt of final documentation conforming to information already received. Logan's ratings are supported by its well-located land bank in Shenzhen city and the Guangdong region. This provides the company with stronger contracted sales and margin visibility over the next 24 months compared with rated peers of similar size. KEY RATING DRIVERS Leverage to Increase: Fitch expects Logan's leverage, measured by net debt/adjusted inventory, to rise to 40%-45% in the next 12-18 months. Its 2016 leverage increased to 37%, from 32% in 2015, after it acquired well-located sites in Shenzhen to reposition its land bank. Fitch expects the company to replenish its land bank in Shenzhen from 2017, mostly via redevelopment projects due to the limited land parcels available in the open market. This may result in lower land cost and more spread-out land payment terms. Robust Contracted Sales, Margins Maintained: The company's contracted sales have increased by over 40% a year since 2014, to CNY29 billion in 2016. The Fitch-calculated EBITDA margin widened to 30% in 2016, compared with 26% in 2014. Fitch expects average selling prices to improve given Logan's well-positioned land bank, although sales by gross floor area are likely to drop. Fitch expects the company to meet its consolidated contracted sales target of CNY35 billion for the next 12-18 months and maintain its margin at 29%-30% over the next two years. Cash Outflow for JVs: Fitch expects Logan to buy back stakes in its joint ventures (JVs) held by financial investors once contracted sales in these projects start in 2017. Logan says these investors have committed CNY8.7 billion to the JVs. Fitch expects a cash outflow of around CNY4.4 billion in 2017 related to these stake purchases, which will leave CNY4.3 billion to be purchased later. Concentration Risks: Fitch believes the well-located and high-quality land bank mitigates Logan's concentration risks over the next year or two. Logan's contracted sales are highly concentrated in the Guangdong region, with Shenzhen city contributing around 43% of 2016 contracted sales. The cities of Shenzhen, Shantou, Foshan and Nanning - all in the Pearl River Delta region - accounted for over 80% of contracted sales in 2015 and 2016. Fitch expects Shenzhen to continue to account for 30%-45% of Logan's total attributable contracted sales in 2017-2018. However, the concentration in Guangdong means Logan's sales performance is strongly correlated with the local economy and local policy changes compared with developers that have more geographically diversified operations. DERIVATION SUMMARY Logan's contracted sales are comparable with other 'BB-' rated Chinese developers that have contracted sales of CNY28billion-32 billion. These peers include KWG Property Holding Limited (BB-/Stable), China Aoyuan Property Group Limited (BB-/Stable) and CIFI Holdings (Group) Co. Ltd. (BB-/Positive). Logan's EBITDA margin is also similar to that of margin-focused homebuilders such as KWG and Yuzhou Properties Company Limited (BB-/Stable). The increase in Logan's leverage to 37% at end-2016 puts it in line with that of peers such as KWG, with leverage of 40%-42%, Yuzhou's 38%-42% and Times Property Holdings Limited (B+/Positive), with 38%-40%. No Country Ceiling or parent/subsidiary aspects affect the rating. Operating environment risks make it unlikely for companies in this sector to be rated above 'BBB+'. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Contracted sales by gross floor area to decrease by 35% in 2017 and increase by 2% in 2018 - Average selling price for contracted sales to increase by 60% in 2017 and 2% in 2018 - EBITDA margin stays at 29%-30% in 2017-2018 - Cash out flow of around CNY4.4 billion in 2017 to buy back financial investors' JV stakes RATING SENSITIVITIES Developments that May, Individually or Collectively, Lead to Positive Rating Action - Substantial increase in its scale, with annual attributable contracted sales sustained above CNY30 billion - Sustained leadership position in key cities in the greater Guangdong area - Achieving sustainable neutral or positive cash flow from operation - EBITDA margin sustained above 30% - Net debt/adjusted inventory sustained below 35% Developments that May, Individually or Collectively, Lead to Negative Rating Action - Net debt/adjusted inventory above 45% for a sustained period - EBITDA margin below 25% for a sustained period LIQUIDITY Sufficient Liquidity: Logan had CNY15 billion of cash on hand, including CNY1.2 billion of restricted cash, at end-2016, compared with short-term debt of CNY5.1 billion. The company had a high cash collection ratio of above 90% for the past two years. Over 75% of Logan's total debt is denominated in Chinese yuan, as the company continued to tap onshore debt markets, including CNY7.4 billion raised in 2016. Contact: Primary Analyst Vanessa Chan Director +852 2263 9559 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Chloe He Associate Director +86 21 5097 3015 Committee Chairperson Su Aik Lim Senior Director +852 2263 9914 Date of Relevant Rating Committee: 4 May 2017 Summary of Financial Statement Adjustments - Capitalised Interest in cost of sales is provided by issuer. Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below