(The following was released by the rating agency)
HONG KONG (Standard & Poor's) Jan. 22, 2013--Standard & Poor's Ratings Services today assigned its 'BB' rating to a proposed issue of U.S.-dollar-denominated senior unsecured notes by Longfor Properties Co. Ltd. (BB+/Stable/--; cnBBB+/--). We also assigned our 'cnBBB' Greater China regional scale rating to the proposed notes. The ratings are subject to our review of the final issuance documentation. We expect the company to use a substantial portion of the net proceeds to refinance its existing debt.
The issue rating is one notch lower than the corporate credit rating to reflect our opinion that offshore noteholders would be materially disadvantaged, compared with onshore creditors, in the event of default. In our view, Longfor's ratio of priority borrowings to total assets is likely to remain above our notching threshold of 15% for speculative-grade debt.
The corporate credit rating on Longfor reflects the company's rapid growth strategy and short track record as a large-scale developer. Longfor is also exposed to the high-end real estate market in tier-one cities in China. This segment is affected by government policies to cool investment demand and housing prices. Nevertheless, in our view, the company's good competitive position and execution capability are likely to support its financial performance. In addition, China's real estate market has stabilized. Although Longfor's financial performance for the first six months of 2012 met our expectation, its debt-to-capital ratio was moderately higher than we had anticipated. We expect the management to control and manage total borrowings such that the ratio is within our rating trigger of 50% for 2012 and beyond.
The stable outlook on Longfor reflects our expectation that the company can demonstrate conservative cash and debt management to generate positive cash flow while pursuing high growth. In our view, Longfor's good competitive position, operational record, and financial discipline will help the company maintain its financial strength.
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008