Moody's rates proposed USD bonds
Global rating agnecy Moody's has assigned a Baa2 senior unsecured rating to the proposed USD bonds issued by China Overseas Finance (Cayman) V Limited and guaranteed by China Overseas Land and Investment Limited's ("COLI"). At the same time, Moody's has affirmed COLI's Baa2 issuer and senior unsecured debt ratings. The outlook of all ratings is stable. The proceeds from the proposed bonds will be used to refinance existing debt, fund new and existing projects, and for other general corporate purposes.
The proposed offshore USD bonds will extend COLI's debt maturity profile and enhance its liquidity for funding planned growth in the next 12-18 months, says Kaven Tsang, a Moody's Vice President and Senior Analyst. After the bond issuance, COLI's key financial metrics -- including projected adjusted net debt/capitalization of around 25%-30% and EBITDA interest coverage at 9x-10x -- will continue to match its Baa2 ratings," adds Tsang, who is also Moody's lead analyst for COLI. The Baa2 rating continues to reflect COLI's leading market position in China's property sector, national coverage, good access to bank and capital markets, and a track record of operating through the cycles.
Its strong sales execution is evidenced by its property sales of HKD91.9 billion in the first 9 months of 2012, and which exceeded its original target of HKD80 billion and was near the revised target of HKD100 billion.
Additionally, COLI also has a track record of maintaining good financial discipline and liquidity. It keeps a good financial profile -EBITDA/interest of 12x and debt/total capitalization of 41% in 1H 2012 -- while achieving high growth. The ratings outlook is stable, reflecting Moody's expectation that the company will maintain its financial discipline and prudence while pursuing further expansion. Upgrade pressure could emerge if COLI can demonstrate a track record of strong sales execution, strong liquidity, and low debt leverage. Indicators for an upgrade would include (1) EBITDA/interest coverage above 10x; and (2) net debt/total capitalization below 25% on a sustained basis.
On the other hand, the ratings could be downgraded if: (1) COLI's sales performance is much weaker than expected, or (2) it incurs a sizable amount of debt to fund land acquisitions, such that its adjusted net debt leverage exceeds 30%-35% and its EBITDA interest coverage falls below 6x-7x. Any signs of weakening liquidity, such that the company's cash falls below 10% of total assets on a sustained basis, or if its ability to access the bank or capital markets is reduced, would also weigh on its ratings. China Overseas Land & Investment Limited (COLI), listed on the Hong Kong Stock Exchange, is a 54.07%-owned subsidiary of the China State Construction & Engineering Corporation Limited (CSCEL, unrated), and one of the largest property developers in the country.