December 8, 2014 / 4:08 AM / in 3 years

Fitch Publishes 'B+' Rating on China's Times Property

(The following statement was released by the rating agency) HONG KONG/SINGAPORE, December 07 (Fitch) Fitch Ratings has published China-based residential property developer Times Property Holdings Limited's Long-Term Issuer Default Rating (IDR) of 'B+' with Stable Outlook and a senior unsecured rating of 'B+' with RR4. The ratings of Times reflect its pure residential property development model targeting first-time home-buyers and upgraders in Guangdong province. The ratings are also supported by its low cost of land bank, its contracted sales scale, its urban redevelopment project pipeline in Guangzhou and its improving capital structure. The ratings are constrained by its high leverage and its geographical concentration in the Guangdong province. KEY RATING DRIVERS Good Land Bank Quality: Times had a total land bank size of 9.0m sqm with average unit cost of CNY1,271/sqm as at end-June 2014. Times has a good quality land bank as reflected by its good project location and low unit cost. In 1H14, as much as 70% of the company's contracted sales came from Guangzhou and Foshan in Guangdong province. Fitch estimated that about half of Times' sellable resources are located in these two cities, where the end-user demand is the strongest and most stable in Guangdong. Given the low land bank cost and the future acquisition of urban redevelopment projects, we believe Times can maintain a gross profit margin of 30%. Sustainable Land Bank Drives Growth: Times is in negotiations for 20 urban redevelopment projects in Guangzhou that could be converted to its land bank in the future. This could enhance its product mix and profitability, so as to support its future sales growth. As of June 2014, Times has converted one urban redevelopment site, while the conversion of two other sites is in progress. Fitch believes that Times' land bank can support its sales performance, as reflected by its January-September 2014 contracted sales of CNY9.8bn, with the total for the year likely to approach CNY15bn, compared with CNY11bn in 2013. Improving Capital Structure: Times has been optimising its capital structure in 2014 through diversifying funding channels and reducing effective borrowing costs. The company repaid some of its trust loans that have higher interest costs and issued longer-tenor offshore bonds at lower rates. It is one of the most active offshore bond issuers in the 'B' rating category, issuing four tranches of US dollar and Chinese yuan bonds in the last nine months amounting to USD550m. Geographical Concentration in Guangdong: Times is a regional property developer focused on Guangdong with exposure in Guangzhou, Foshan, Zhuhai, Zhongshan and Qingyuan. It also has some operations in Changsha in Hunan province. The company's geographical concentration and scale constrain the ratings. We believe that Times will concentrate on expanding its size within Guangdong province and is unlikely to expand into other provinces before solidifying its position in its home province. High Leverage During Expansion: Times' leverage is likely to remain at an above-average level as the company is expanding. However, given the company's disciplined land acquisition strategy and its modest growth target, we believe that leverage will not reach excessively high levels. We expect Times' leverage, as measured by net debt divided by adjusted inventory, to remain at 40%-50% in 2014-2015. Sufficient Liquidity to Repaying Debt: At end-June 2014, Times had cash and cash equivalents of CNY2.2bn and restricted bank deposits of CNY3.1bn. The company also has a good track record in accessing the capital market. Hence, we believe that Times has sufficient liquidity to cover its short-term debt of CNY1.6bn. RATING SENSITIVITIES Negative: Future developments that may, individually and collectively, lead to negative rating action include: - Net debt/adjusted inventory sustained above 50% (June 2014: 46.6%) - Contracted sales/total debt sustained below 1x (2013: 1.2x) - Annual contracted sales falling below CNY12bn - EBITDA margin sustained below 15% (2013: 17.5%) Fitch does not expect further positive rating action until Times significantly increases its scale and diversifies geographically. Contact: Primary Analyst Alex Choi Associate Director +852 2263 9969 Fitch (Hong Kong) Limited 28th Floor, Two Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Su Aik Lim Director + 65 6796 7233 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available at Applicable criteria, 'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage', dated 28 May 2014, are available at Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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