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April 11, 2008 |
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COASTAL GREENLAND: Moody's to Review B1 Corporate Family Rating Moody's Investors Service has put Coastal Greenland Limited's B1 corporate family rating and B2 senior unsecured rating on review for possible downgrade. The review follows the announcement by Shanghai Fenghwa Group Co. Ltd., a 21%-owned associate of CGL and listed on the Shanghai Stock Exchange, that it will acquire all of CGL's equity interests in 9 subsidiaries by way of a new share issuance. As a result, CGL will obtain majority ownership in Fenghwa and will continue to hold majority ownership in the nine subsidiaries through Fenghwa. The nine subsidiaries hold all of CGL's residential development projects. Moody's understands the transaction is subject to all necessary regulatory and shareholder approvals, and notes that share trading in CGL has been suspended. "While this transaction could broaden CGL's funding platform through the A-share market and realign the business focus of CGL and Fenghwa in a more efficient manner, a majority of CGL's future cash flow from its normal operations will be dependent on dividend payments from Fenghwa, over which it will not have full ownership. Moody's expects CGL will own no more than 80% of Fenghwa," says Kaven Tsang, a Moody's assistant vice- president/analyst. "This situation raises concerns over potential fund leakages. It is uncertain if the additional cash flow from Fenghwa could cover CGL's reduced share of cash flow generated from the existing projects. There is also concern over deepened risk of structural subordination due to the insertion of a PRC intermediary holding company, which is separately listed and will hold majority of the group's business and assets," adds Tsang, Moody's lead analyst for CGL. "On the other hand, CGL will obtain an additional 49-59% interest in Fenghwa, which currently has property projects in Shanghai, Chengdu and Anshan. In Moody's view, the risk profile of Fenghwa's projects is different from CGL's existing projects," adds Tsang. In its review, Moody's will assess the financial position of Fenghwa, and the impact of the transaction on CGL's cash flow and credit profile on both a consolidated and stand-alone basis. A satisfactory review would confirm the ratings but any negative assessment would pressure the ratings. CGL is a Chinese property developer focusing on medium- and high-end residential and commercial property developments. It has an attributable land bank of 4.3 million sqm. in six major economic areas in China. Founded in 1990, the company listed on the Hong Kong Stock Exchange in 1997 and has a market capitalization of HK$3.3 billion. |
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