07.11.2012 13:21
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Gemdale International Investment Limited -- Moody's assigns Ba3 to Gemdale's proposed bond; outlook stable

Hong Kong, November 07, 2012 -- Moody's Investors Service has assigned a Ba3 senior unsecured rating to the proposed bonds to be issued by Gemdale International Investment Limited.

At the same time, Moody's has affirmed Gemdale Corporation's Ba1 corporate family rating, Famous Commercial Ltd's Ba3 corporate family rating, and Gemdale International Holding Limited's Ba3 senior unsecured bond rating.

The outlook on all ratings is stable.

The proposed bonds will be guaranteed by Famous and supported by a Deed of Equity Interest Purchase Undertaking and a Keepwell Deed between Famous, Gemdale Corporation and the bond trustee. There will also be 12 months of interest reserves in an offshore interest reserve account.

All the net proceeds will be used for debt refinancing.

RATINGS RATIONALE

"The proposed bonds -- which will replace Famous' existing bank loans ultimately guaranteed by Gemdale Corp -- will slightly increase Famous' repayment risk," says Kaven Tsang, a Moody's Vice President and Senior Analyst.

"But Moody's also expects that the amount of the new bond will be maintained at a manageable level, such that Famous' projected standalone credit metrics -- including total debt/total assets not exceeding 60%-70% (after repayment of existing debt) and EBITDA/interest not less than 1.5x -- will remain appropriate for its B2 standalone credit profile," adds Tsang, also Moody's lead analyst for Gemdale.

Any deviation from such expectation would pressure the ratings and/or their outlook.

Famous' B2 standalone credit profile also considers the fact that it is part of the Gemdale group.

"Additionally, the proposed bonds will improve Famous' funding stability by lengthening its debt maturity profile," says Tsang.

Famous' Ba3 corporate family rating reflects its B2 standalone credit profile and a two-notch rating uplift, based upon the financial and operational support provided by Gemdale Corp.

The two notches of uplift incorporate (1) Gemdale Corp's 100% ownership of Famous; (2) Gemdale Corp's track record of financial support to Famous; and (3) the fact that all Famous' projects are operated by Gemdale Corp, thereby offering cost efficiency and a strong brand name.

Famous' B2 standalone credit profile further reflects its small scale operation of 13 projects in 6 cities; its land bank of about 3 million sqm in GFA, and annual contract sales of approximately RMB3 billion. Furthermore, as 6 projects are in only one city, Moody's expects a high degree of volatility in Famous' sales performance.

Separately, Gemdale Corp's Ba1 corporate family rating reflects its established track record in China's property market. The company demonstrated resilience to the economic down-cycles prevalent in both 2008 and 2011. It achieved contract sales growth of 17% in 2008, and 9% in 2011, supported by its established brands and wide geographic coverage of approximately 70 projects across 20 cities.

The rating also reflects Gemdale Corp's good access to funding and flexibility in managing its funds. It is one of the few Chinese property developers that can raise unsecured loans at the corporate level. Such an ability provides it with the flexibility to invest surplus liquidity in projects according to its business plan. In addition, Gemdale Corp has widened its funding sources by raising offshore financing through its overseas subsidiary, Famous Commercial Ltd.

Another rating driver is Gemdale Corp's strong liquidity, as evidenced by its high level of cash -- RMB19 billion as of 30 June 2012 -- which more than covers its short-term debt obligations of RMB12 billion.

Gemdale Corp also exhibits a cautious approach to land acquisitions. It has a land bank of around 19 million square meters, which is small relative to most of its Ba-rated peers. However, this land bank is adequate for its development over the next five years.

Moreover, Gemdale Corp has a stable management team. Four of the six executive directors on its board, including the chairman and the CEO, have been working in the company for around 20 years.

Famous' stable rating outlook reflects Moody's expectation that it will stay well managed by Gemdale Corp, which provides financial and operational support.

Famous' ratings could come under downward pressure if it (1) fails to execute its business plan, such that sales and operating cash flow generation are weaker than anticipated; and/or (2) materially accelerates development and executes an aggressive land acquisition plan, such that debt leverage increase with total debt/total assets exceeding 65%-70%, and EBITDA/interest dropping below 1x-1.5x on a sustained basis.

An increase in refinancing pressure due to more than 40% of its total debt maturing in one year will also pressure the rating.

Additionally, any evidence of a weakening in the support from Gemdale Corp to Famous, or a deterioration in Gemdale Corp's own credit profile could also be negative for the ratings.

On the other hand, upward rating pressure on Famous could emerge if it can (1) successfully implement its business plan; (2) improve its scale and diversity to reduce sales and earnings volatility; and (3) improve its credit profile.

Credit metrics which Moody's would consider for an upgrade for Famous include an improvement in its financial profile with its total debt/total assets falling below 50% and EBITDA/interest rising above 3x on a sustained basis.

The principal methodology used in rating Gemdale Corporation, and Famous Commercial Ltd was the Global Homebuilding Industry Methodology published in March 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Incorporated in China, Gemdale Corporation is one of the leading developers in China's residential property sector. It was founded in 1988 and listed on the Shanghai Stock Exchange in 2001.

Incorporated in Hong Kong in 1995, Famous Commercial Ltd is a wholly-owned subsidiary of Gemdale Corporation. It was initially established as a sales office in Hong Kong to sell Gemdale's property projects to overseas customers. It was eventually developed as an offshore holding company, housing some of Gemdale's property projects in China. It also serves as a funding vehicle in the overseas market.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Kaven Tsang Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Gary Lau MD - Corporate Finance Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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