Fitch: Sunac's Purchase of Top Spring Projects to Have No Immediate Ratings Impact
OREANDA-NEWS. Fitch Ratings says that Sunac China Holdings Limited's (BB/Stable) plan to acquire seven property projects from Hong Kong-based Top Spring International Holdings Limited for CNY4.4bn will have no immediate effect on its rating. The expansion would give Sunac access to an important market - Shenzhen - and further enhance its existing presence in its core market, Shanghai and east China.
The proposed acquisition of seven projects, announced on 19 May 2016 will raise leverage (measured by net debt/adjusted inventory), but this should still remain under 40% in the next 12 months, the level at which Fitch would consider negative rating action. Leverage was just 26% at end-2015, which is relatively low compared with 'BB' rated Chinese homebuilders. Sunac's total cash position of CNY27bn at end-2015 also supports its acquisition plans. The acquisition will be subject to the conditions precedent having been satisfied.
Fitch considers the total acquisition price of CNY4.4bn to be fairly low, as the purchases include three land parcels in first-tier cities and four in affluent second-tier cities. Furthermore, the implied average land price in the acquisition compares favourably with Fitch's assumption of an average land cost of over CNY9,500 per square metre in our projections for Sunac. Fitch does not expect margin pressure brought on by those new projects, given the low land cost and desirable locations.
Sunac has accelerated land purchases since the start of 2016; and total land premium, if including this acquisition, would already have reached CNY41.4bn (CNY25.9bn on an attributable basis). However, the faster land replenishment is in line with robust contracted sales growth, which rose by 93% y/y in the first four months this year to CNY35.5bn. Fitch expects Sunac's contracted sales to be on track to hit CNY100bn in 2016, and total land premium would be controlled at under 50% of our projected contracted sales.