Moody's rates pro­posed USD bonds

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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.

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