TEXT-S&P Assigns 'BB' And 'cnBBB' Rtgs To Longfor's Proposed Notes

(The following was released by the rating agency)

HONG KONG (Standard & Poor's) Oct. 11, 2012--Standard & Poor's Ratings Services today assigned its 'BB' issue rating to a proposed issue of U.S.-dollar-denominated seven-year senior unsecured notes by Longfor Properties Co. Ltd. (BB+/Stable/--; cnBBB+/--).

At the same time, we assigned our 'cnBBB' Greater China regional scale rating to the proposed notes. The ratings are subject to our review of the final issuance documentation.

Longfor intends to use the proceeds to finance existing and new property projects, refinance certain existing indebtedness, and for general corporate purposes. The issue rating is one notch lower than the corporate credit rating to reflect our opinion that offshore noteholders would be materially disadvantaged, compared with onshore creditors, in the event of default. In our view, Longfor's ratio of priority borrowings to total assets is likely to remain above our notching threshold of 15% for speculative-grade debt.

The corporate credit rating on Longfor reflects the company's rapid growth strategy and short track record as a large-scale developer. In addition, Longfor is exposed to the high-end real estate market in tier-one cities in China. This segment is challenging because it is affected by government policies to cool investment demand and housing prices. Nevertheless, in our view, the company's good competitive position and strong execution capability are likely to improve its financial performance despite the uncertain outlook for China's real estate market.

While Longfor's results for the first six months of this year met our expectation, its debt-to-capital ratio was higher than we had anticipated, at 50%. The company's recent Hong Kong dollar 3 billion share placement will alleviate some of the pressure on its capital structure, in our opinion. The stable outlook on Longfor reflects our expectation that the company can demonstrate conservative cash and debt management to generate positive cash flow while pursuing high growth. In our view, Longfor's good competitive position and strong execution will help to maintain healthy sales and margin amid the deepening market correction in 2012.