Reuters logo
Fitch Rates China Aoyuan's Proposed USD Notes 'BB-(EXP)'
September 6, 2017 / 3:07 AM / 17 days ago

Fitch Rates China Aoyuan's Proposed USD Notes 'BB-(EXP)'

(The following statement was released by the rating agency) HONG KONG, September 05 (Fitch) Fitch Ratings has assigned China Aoyuan Property Group Limited's (BB-/Stable) proposed US dollar senior notes an expected 'BB-(EXP)' rating. The notes are rated at the same level as Aoyuan'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. KEY RATING DRIVERS Strong Sales Performance: Aoyuan's 1H17 total contracted sales increased by 57% yoy to CNY16.5 billion, after quadrupling to CNY25.6 billion in 2016 from 2012 as the company continued its fast-churn strategy. Fitch expects contracted sales to continue to increase in 2017, backed by CNY54 billion-60 billion of sellable resources, although the pace of growth is likely to be slower than in 2016. About 72% of Aoyuan's 1H17 contracted sales remained in China's Guangdong province, but the company is prudently exploring opportunities in other provinces and overseas. Stable Financial Profile: Maintaining healthy leverage despite rapid expansion sets Aoyuan apart from its fast-growing peers. Leverage, measured by net debt/adjusted inventory, was 33.2% at end-June 2017, a slight increase from 28.7% at end-2016. This gives the company healthy headroom below the 40% level where Fitch would consider negative rating action. We expect the ratio to remain stable at end-2017. Sales efficiency, measured by contracted sales in the last 12 months/gross debt, was stable at above 1.2x at end-June 2017. We expect Aoyuan to maintain its fast-churn model and prudent land acquisition strategy. This should keep its financial profile healthy for the next 12-18 months, supporting its credit profile. Adequate Land Bank: Aoyuan had 95 projects, with 17.1 million square metres (sq m) of gross floor area at end-June 2017, sufficient for four to five years of development. Around 20% of land bank by value is in lower-tier cities, but the percentage continues to decrease, with land bank quality improving over the years. Moreover, about half of Aoyuan's land in lower-tier cities is in smaller cities outside of Guangzhou that are still targeted at buyers from the city. Fitch considers contracted sales from these sites to be satisfactorily predictable, as they are easily accessible from Guangzhou and the company has a satisfactory execution record. Healthy Liquidity: Aoyuan has a strong liquidity position, which supports its planned expansion. Total cash was CNY13.7 billion at end-June 2017, against short-term debt of CNY10.0 billion. The company is also committed to improving its debt structure. Funding initiatives in the last few years, both onshore and offshore, and diversified funding channels improved its debt maturity profile and cut funding costs. The company's weighted-average funding cost was 7.6% at end-1H17, falling from 8.1% in 2016. We estimate that by end-2017 Aoyuan will retain its strong liquidity position and its funding cost will fall further to 7.5%. DERIVATION SUMMARY Aoyuan's contracted sales are comparable with other 'BB-' rated Chinese developers that have contracted sales of CNY25billion-30 billion. These peers include KWG Property Holding Limited (BB-/Stable), Logan Properties Holdings Company Limited (BB-/Stable) and CIFI Holdings (Group) Co. Ltd. (BB-/Positive). Aoyuan's sales efficiency ratio is also similar to that of fast-churn homebuilders, such as CIFI, Future Land Holdings Co., Ltd. (BB-/Positive) and Times Property Holdings Limited (B+/Positive). Aoyuan's net leverage of below 35% in the past several years is in line with that of Logan and CIFI, but compares favourably against KWG, which has leverage of 40%-42%, Yuzhou Properties Company Limited (BB-/Stable), with leverage of 38%-42%, and Times Property's 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: - A stable land acquisition pace in 2017 and 2018 at 40%-50% of contracted sales - Increasing contracted sales, which are estimated on sellable resources in the next 12-18 months, although at a slower pace than in 2016 - A slightly higher average selling price for contracted sales in 2017 due to a larger share of high-margin products - Company to maintain its fast-churn and high cash-flow turnover business model RATING SENSITIVITIES Negative: Developments that may, individually or collectively, lead to negative rating action include: - EBITDA margin sustained below 20% (end-June 2017, estimated at 23%) - Net debt/adjusted inventory sustained above 40% (end-June 2017: 33%) - Contracted sales/gross debt sustained below 1.2x (end-June 2017: 1.1x) - Decrease of total land bank sellable gross floor area to below 3.5x of annual contracted sales gross floor area for a sustained period Positive: Positive rating action is not expected unless Aoyuan substantially increases its scale and establishes core markets in multi-regions without compromising its financial metrics. This is not expected over the next 12-18 months. LIQUIDITY Healthy Liquidity: Aoyuan has a strong liquidity position, which supports its planned expansion. Total cash was at CNY13.7 billion at end-June 2017, against short-term debt of CNY10.0 billion. The company is also committed to improving its debt structure. Funding initiatives in the last few years, both onshore and offshore, and diversified funding channels improved its debt maturity profile and cut funding costs. Short-term debt accounted for only 21% of total debt at end-1H17 and the company's weighted-average funding cost was 7.6%, from 8.1% in 2016. Contact: Primary Analyst Vicki Shen Director +852 2263 9918 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Rebecca Tang Associate Director +852 2263 9933 Committee Chairperson Su Aik Lim Senior Director +852 2263 9914 Date of Relevant Rating Committee: 29 December 2016 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 - Effective from 27 September 2016 to 10 March 2017 (pub. 27 Sep 2016) 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

Our Standards:The Thomson Reuters Trust Principles.
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