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December 5, 2007 |
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GREENTOWN CHINA: Land Buys Cue S&P to Downgrade Rating to 'BB-' Standard & Poor's Ratings Services lowered its long-term corporate credit rating on Greentown China Holdings Ltd. to 'BB-' from 'BB'. The outlook is stable. At the same time, Standard & Poor's lowered the long-term debt ratings on the company's US$400 million senior unsecured notes and its CNY2.31 billion convertible notes to 'BB-' from 'BB'. "We have downgraded Greentown to reflect its increasingly aggressive land acquisitions, which together with a delay across some projects have contributed to the company's key financial metrics weakening beyond a level consistent with the previous rating," said Standard & Poor's analyst Peter Sikora. Greentown's aspirations to improve key credit metrics over the next few years are dependent on property market conditions remaining favorable. Any improvement would also be reliant on the company maintaining its sound brand and market positioning in order to achieve strong sales targets and profit margins across property development projects. In addition, Greentown continues to display a strong appetite for adding to its land bank holdings, which could further delay any anticipated improvement in the company's financial metrics. The progressive introduction of new government regulations aimed at stemming further overheating of the property market could affect Greentown's operating performance, particularly as many recently introduced government measures have been aimed at the high end of the market, a key focus for Greentown. The rating on Greentown continues to recognize the company's strong presence in Hangzhou, the capital city of Zhejiang province; its experience in other first- and second-tier cities; its large, well-located land bank; and diverse development projects. These strengths are partly offset by the above-average risks facing residential property developers in China, including the cyclical nature of the real estate market, evolving government regulations and tightening policies, and fierce competition. Other major risks include the company's rapid expansion plan, concentrated activities in Zhejiang province, a lack of stable recurring income, and high use of borrowings to fund business expansion. |
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