Fitch: Global Logistic Properties' Rating Unaffected by China Slowdown
OREANDA-NEWS. Singapore-based logistic property developer and operator Global Logistic Properties Limited's (GLP; BBB+/Stable) rating will not be affected by the slowdown in its China business, says Fitch Ratings.
GLP's China business is well capitalised to face increased industry risk, with a loan-to-value ratio of 11% at end-March 2016 (FY16) (FY15: 9%), and is not yet a key contributor to GLP holding company's operating cash flow. The impact of GLP's China business is also reducing, as the company continues to grow its global asset portfolio via its fund management platform.
Fitch shares GLP management's assessment that the Chinese logistic property market is facing overcapacity and believes this can become an acute problem if aggressive investments persist. GLP aims to reduce China development starts to USD1.4bn in FY17, from USD1.7bn in FY16, a first time drop in China growth in five years. The company will stop increasing development starts until the Chinese portfolio lease ratio comes back to above 90% (87% in FY16 and 91% in FY15). GLP remains the biggest player in the Chinese logistic property market and its precautious measures to avoid overinvestment in China may steer smaller players away from irrational competition.
In Fitch's assessment of GLP's holding company's financial profile, the agency assumed there was no cash income contribution from GLP's China business due to continued capital expenditure. Fitch estimates GLP holding company's recurring income-interest-coverage can rise above 2.0x in FY17 due to continued recurring fee-income growth. The holding company's leverage, as measured by net-debt minus net-working-capital to investment-in-funds, remained a healthy 26% in FY16, compared with 35% in the previous year. Fitch expects the holding company's leverage to remain below 50%; a threshold where Fitch may consider taking negative rating action.
Furthermore, GLP's business profile is increasingly bolstered by its US asset portfolio, which comprises 36% of its total assets-under-management of USD35bn, up 75% in FY16 from the previous year. GLP US portfolio's assets-under-management already exceeds that of China and is driving GLP's recurring fee-income growth.