Moody's Decries Sunac China's Asset Acquisition Plan as Credit-Negative
Yicai Global
/SOURCE : Yicai
Moody's Decries Sunac China's Asset Acquisition Plan as Credit-Negative

(Yicai Global) Sept. 21 -- International rating agency Moody's Investors Service said the USD2 billion (CNY13.8 billion) asset-acquisition plan of Sunac China Holdings Ltd. [HKG:1918] will hold the firm's debt leverage at a high level, thus negatively influencing its credit.

Sunac China and Legend Holdings Corp. [HKG:3396] said this week they have struck two framework agreements, per which Sunac China plans to buy the share and creditor's rights of 41 subsidiaries of Legend Holdings Ltd. for CNY13.8 billion in a deal involving the rights to and interests in 42 property projects.

Moody's demurred, saying in a news release that the total consideration for this large-scale acquisition plan is equal to 34 percent of the aggregate cash held by Sunac China as of June 30. Sunac will thereby vitiate its ability to curb the growth of its debt, it said, and debt leverage will accordingly stay high, thus heightening financial risks. Sunac China -- a real estate developer headquartered in the eastern city of Tianjin -- has actively purchased land over the past 12 to 18 months, boosting the firm's aggregate debt by 50 percent, from CNY41.8 billion in late 2015 to CNY62.8 billion by late June. Yet Moody's predicts that Sunac China will nonetheless have adequate liquidity to support this acquisition, since the company has seen robust growth in contract sales.

"The sustained high-level debt leverage will negatively affect the rating," said Mr. Liang Zhenbang, Moody's vice president and senior director of credit rating.

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