OREANDA-NEWS. Fitch Ratings says China Overseas Land & Investment Limited's (COLI, A-/Stable) HKD37.08bn (CNY31bn) acquisition of the CITIC Group's property portfolio supports the Chinese property developer's rating.

Fitch believes the transaction will not result in a sustained substantial increase in COLI's leverage. This is because it will pay for the transaction via share issuance of HKD29.724bn and with assets worth HKD7.356bn. Furthermore, COLI's management has a strong track record of prudent financial management, and it is likely to manage the leverage of the acquired portfolio to be coherent of with COLI's own financial targets. COLI's leverage, as measured by net debt-to-adjusted inventory, was 12.5% as of June 2015.

The acquired portfolio comprises assets from CITIC Pacific, CITIC Corporation and CITIC Limited (together known as CITIC Group). COLI and the group signed the sales and purchase agreement for the transaction on 14 March 2016.

Following the transaction, CITIC Group will own more than 10% of COLI and become the second-largest shareholder in the company. CITIC Group will be given board representation; and as a long-term strategic shareholder, will have potential business collaboration with COLI.

Fitch expects the acquisition to increase COLI's land bank in Tier 1 and 2 cities by 54.5%. COLI had an attributable land bank of 44.09 million square metres (sq m) in gross floor area (GFA) as of end-June 2015. CITIC Group's property portfolio includes residential-focused property development projects with total GFA of about 24 million sq m covering 25 cities, most of which are Tier 1 and 2 cities.

Fitch believes COLI is one of the few state-owned enterprises with the capacity and ability to execute such a large acquisition, in view of its healthy financial position and previous experience in absorbing a large asset injection from its ultimate parent, China State Construction Engineering Corporation. In the medium to long term, Fitch expects COLI to continue its business strategy and maintain its leadership position in the Chinese homebuilding market.