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January 17, 2008 |
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SHIMAO PROPERTY: Moody's Revises Rating Outlook to Negative Moody's Investors Service has changed the outlook for Shimao Property Holdings Limited's Baa3 issuer and bond ratings to negative from stable. This rating action follows Shimao's announcement that it has acquired new property projects in Hangzhou and Dalian for CNY3.07 billion and CNY1.65 billion respectively. "The negative outlook is due to concerns that the aggressive nature of Shimao's strategy for acquiring land could increase its financial leverage and weaken its liquidity profile in the near term," says Peter Choy, a Moody's Vice President and Senior Credit Officer. "In addition, its latest acquisitions come at a time when the company has fully drawn its US$328 million syndicated revolving loan to meet upcoming land premium payments, while the outstanding issue on the financing terms of the loan remain unresolved," says Mr. Choy. "Until these terms are resolved favorably for Shimao, the availability and continuation of commitments from its banks will stay uncertain," says Mr. Choy, adding, "Any pre-mature cancellation of the facility will further weaken its liquidity profile." "Moreover, management has increased its pace in land acquisitions, exceeding Moody's expectations and leading to concerns about financial discipline," says Mr. Choy. "At the same time, the Baa3 rating stays supported by Shimao's competitive business model, sizeable land bank, the attractive locations of its projects, the good quality of its investment portfolio, and strong brand name," says Mr. Choy. "Moody's also notes the company largely met its cash sales target in 2007." With this latest land acquisitions, debt leverage will be close to 40%. However, any further aggressive land acquisitions will put pressure on the rating. Further downward rating pressure would also emerge if its liquidity and financial strength deteriorate due to: (a) a slowdown in sales; (b) more aggressive debt-funded acquisitions of land/projects; (c) a material increase in debt; (d) premature termination of material financing commitments, or refinancing at higher interest costs; or (e) implementation of austerity measures by the Chinese government, resulting in the group suffering tight liquidity for its projects. On the other hand, the outlook may return to stable if Shimao can: (a) manage its property sales according to plan; (b) demonstrate financial discipline in acquiring land and within its business budget; (c) raise new equity funds to provide a buffer for any downturn in property sales; and (d) obtain agreement from lenders to amend the terms of its US$328 million syndicated loan, such that it will remain available without constraint and not subject to any prepayment risk. About Shimao Shimao Property Holdings Limited -- http://www.shimaogroup.com/ -- is a large-scale developer of real estate projects in China, specializing in high-end developments in prime locations. The company's business portfolio comprises the development of residential properties, retail properties, offices and hotels. The company has 15 projects at various stages of development located in Shanghai, Beijing, Harbin, Wuhan, Nanjing, Fuzhou, Kunshan, Changshu, Shaoxing and Wuhu. The Troubled Company Reporter-Asia Pacific reported on June 13, 2007, that Standard & Poor's Ratings Services said that its rating on Shimao Property Holdings Ltd. (BB+/Stable/--) was not immediately affected by the company's recent proposal to inject most of its retail and commercial assets into A-sharelisted Chinese property company, Shanghai Shimao Co. Ltd., in return for ultimate controlling ownership in the company. In addition, on July 24, 2007, Fitch Ratings has assigned a Long-term Foreign Currency Issuer Default Rating of 'BB+' to China-based Shimao Property Holdings Limited. Simultaneously, Fitch has assigned issue ratings of 'BB+' to Shimao's US$350 million senior notes due 2016 and USD250m senior floating rate notes due 2011, respectively. The Outlook for the IDR is Stable. |
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