December 18, 2017 / 3:45 AM / in a year

Fitch: CNLP's Bond Rating Unaffected by Tap Issuance

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, December 17 (Fitch) Fitch Ratings says China-based warehouse owner China Logistics Property Holdings Co., Ltd's (CNLP; B/Stable) issuance of an additional USD100 million of its existing USD200 million 8% senior notes due 2020 will not affect the existing 'B' rating on the bonds. The tap issuance and existing bonds are rated at the same level as CNLP's senior unsecured rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the company. CNLP's ratings are supported by strong industry demand for high-standard warehouses, the company's national geographic coverage, and its extensive network. CNLP also has the advantage of being one of the largest logistic-property owners in China's Yangtze River Delta region, a major economic hub. However, its ratings are constrained by its small scale, low interest coverage of below 1.0x, and continuing funding demand for capex. CNLP's reliance on debt for its expansion indicates its limited financial flexibility, and is therefore a further constraint on its rating. Fitch sees CNLP's business profile within the 'B+'/'BB-' category as it enjoys a strong network, with more than 2 million square metres (sqm) of completed logistic properties as of end-1H17. However, recurring EBITDA interest coverage had weakened to 0.32x by end-1H17 from 0.57x at end-2016 due to a narrowing in gross profit margin to 63.7% in 1H17 from 67.2% in 2016. CNLP was faced with multiple tenancies expiring without extension in the first half of 2017, which caused revenue and margins to be lower than Fitch's previous expectations. CNLP has already found new tenants for the vacant properties. Its newly stabilised properties since early 2016 - defined as having been in operation for 12 months or with occupancy above 90% - have also achieved satisfactory occupancy levels, restoring CNLP's overall occupancy rate to 89.4% as of end-November 2017 from 84.7% as of end-June 2017. This will mean that CNLP's 2017 EBITDA will fall short of Fitch's forecast, but 2018 EBITDA can still match our expectations - provided tenant retention or replacement remains as stable as expected. Fitch would consider taking negative rating action if CNLP's tenant retention remains unstable, and which results in its recurring EBITDA interest coverage failing to improve significantly. Contact: Chloe He Associate Director +86 21 5097 3015 Fitch Ratings (Beijing) Limited, Shanghai Branch 3401, 34/F, Shanghai Tower No. 479 Lujiazuihuan Road Shanghai, 200120, China Vicki Shen Director +852 2263 9918 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on 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.

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