S&P rates Yuzhou notes B

Standard & Poor's said it assigned a B rating to the proposed senior unsecured notes by Yuzhou Properties Co. Ltd., along with a cnBB- greater China regional scale rating to the notes.

The rating on Yuzhou's proposed notes is one notch lower than the corporate credit rating to reflect an opinion that offshore noteholders would be materially disadvantaged, compared with onshore creditors, in the event of default, S&P said.

The company's ratio of priority borrowings to total assets will remain above the notching threshold of 15% for speculative-grade debt, the agency added.

Yuzhou will use the proceeds from the proposed notes to refinance existing loans and fund its land acquisitions, S&P said.

The proposed issuance is expected to moderately increase the company's total debt because it plans to repay a part of its debt from the notes proceeds, the agency said.

Yuzhou's debt-to-EBITDA ratio is estimated at 3x to 4x in 2012 and 2013, which is consistent with the B rating, S&P said.

The B+ corporate credit rating on Yuzhou reflects the company's limited operating flexibility due to its small operating scale and high geographic and project concentration, the agency said.

Yuzhou's limited track record and expansion into new markets could also heighten the company's business and execution risks, S&P added.

The company's leading market position in Xiamen, its low-cost land bank and above-average profitability compared with that of similarly rated peers temper its weaknesses, the agency said.

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