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Fitch: Modern Land's Bond Rating Unchanged Following Tap Issuance
December 29, 2016 / 2:53 AM / a year ago

Fitch: Modern Land's Bond Rating Unchanged Following Tap Issuance

(The following statement was released by the rating agency) HONG KONG, December 28 (Fitch) Fitch Ratings says Modern Land (China) Co., Limited's (Modern Land: B+/Stable) proposed issuance of an additional USD150m of its 6.875% senior notes due 2019 will not affect the existing 'B+' rating and Recovery Rating of 'RR4' on the bond. The proposed and existing bonds are rated at the same level as Modern Land's senior unsecured rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the company. Modern Land's ratings are supported by its improving land-bank quality, low leverage and strong liquidity. The rating is mainly constrained by its small scale as well as possible earnings fluctuations resulting from volatile conditions of the land market. Modern Land's reported contracted sales increased by more than 45% yoy to CNY14.5bn in January-November 2016, reaching 97% of the company's sales target for the full year. Fitch expects Modern Land's attributable contracted sales to increase in the double digits in the next two years to above CNY10bn each year, supported by more than CNY40bn of attributable saleable resources, by Fitch's estimate. Modern Land's land bank has strengthened after it extended coverage to more Tier 1 and 2 cities since 2014. Although Xiantao and Dongdaihe, two Tier 4 cities in China, continue to account for 35% of Modern Land's attributable land bank by area; Tier 1 cities like Beijing and Shanghai, and Tier 2 cities like Hefei, Changsha, and Suzhou account for more than 60% of Modern Land's existing saleable resources. However, Modern Land's land bank remains small and is the main obstacle to expansion. Its attributable available-for-sale land bank was merely 2.4 million square metres (sqm) in gross floor area (GFA) at end-June 2016, compared with attributable sales GFA of 545,000 sqm in 1H16. The land bank is enough for less than two years of sales. Modern Land is tapping new land acquisition channels to boost its land reserves, including seeking more M&A deals, collaborating with governments on green housing, and cooperating with asset management firms. Fitch will not consider further positive rating action until the company achieves a sustainably larger land bank. Modern Land's leverage continued to be controlled and comparable with 'B+'-rated peers in 1H16. Leverage rose to 26% in 1H16 from 22% in 2014, driven by increased pressure to replenish quality land bank and the shift towards higher-tier cities. Fitch expects Modern Land's leverage to remain below 40% until the company materially increases its land reserves relative to its sales. Modern Land's liquidity remains healthy with total cash of CNY5.7bn, compared with short-term debt of CNY3.5bn as of end-June 2016. Modern Land managed to significantly lower its funding cost to 8.4% in 1H16 from 10.5% in 2015, after the completion of a CNY1bn five-year onshore bond issuance in 1H16 at a 6.4% coupon rate. The company has also refinanced part of two redeemed offshore bonds, issued at 11% and 13.875% coupon rates, with a new US dollar bond issued with a 6.875% coupon rate in October 2016. Fitch expects the lower borrowing cost to partially offset a lower gross profit margin and strengthen Modern Land's credit profile. Contact: Chloe He Associate Director +86 21 5097 3015 Fitch Ratings (Beijing) Ltd. Shanghai Branch 1015, IFC Tower A, HSBC Building, 8 Century Avenue, Pudong, Shanghai 200120, China Vanessa Chan Director +852 2263 9559 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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