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Moody’s: R&F’s land acquisition in Malaysia is credit negative

HONG KONG: Moody’s Investors Service said Guangzhou R&F Properties Co Ltd’s acquisition of six land parcels in Johor Baru for 8.5 billion yuan (RM4.5 billion) has negative implication for its credit profile.

The rating agency said the transaction does not have any immediate impact on the Ba2 corporate family rating of Guangzhou R&F; the Ba3 corporate family rating of R&F Properties (HK) Co Ltd (R&F HK, together with Guangzhou R&F, the group); and the Ba3 senior unsecured rating for the bonds issued by Caifu Holdings Ltd and guaranteed by R&F HK.

The outlook for all ratings remain stable, it added.

“The acquisition is credit negative because it will raise the group’s financial and execution risks,” said Kaven Tsang, Moody’s vice-president and senior analyst in a statement yesterday.

Moody’s noted that Malaysia is a new market for the group, where it has yet to establish its brand and track record. “The new project will also expose the group to regulatory uncertainties in Malaysia’s property market,” it added.

Further, it said, the acquisition is sizeable in total price, representing 7.3% of the group’s total assets as at June.

It added that the project will require “sizeable” investments upfront, including construction costs, before it can be pre-sold, as estimated by the company by end-2014.

Moody’s said these funding needs will keep Guangzhou R&F’s adjusted debt over capitalisation at a high level of more than 60% in the next one to two years.

“Partly mitigating the concern is the consideration that the group had adequate funding — including cash on hand and operating cash flow — to support the purchases,” says Tsang, also Moody’s lead analyst for Guangzhou R&F and R&F HK.

Moody’s said the fact that the costs for the land will be paid over three years through four instalments also mitigate the group’s near-term funding pressures.

As at June 30, Guangzhou R&F had consolidated cash in hand of 19.3 billion yuan.


This article first appeared in The Edge Financial Daily, on December 4, 2013.

 

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