Fitch Ratings: Skyfame's Bond Rating Unaffected by Tap Issuance

Skyfame Realty (Holdings)

07/11/2019 09:06

(The following statement was released by the rating agency)


Fitch Ratings-Hong Kong/Shanghai-November 07: Fitch Ratings says China-based 
homebuilder Skyfame Realty (Holdings) Limited's (B-/Stable) proposed tap of its 
existing USD205 million 13% senior notes due 2022 will not affect the 'B-' 
rating on the bonds.

The proposed tap issuance carries the same terms and conditions as the existing 
notes, which are rated at the same level as Skyfame's senior unsecured rating 
because they constitute its direct and senior unsecured obligations. Skyfame 
intends to use the net proceeds from the proposed notes to refinance its 
offshore debt and other general corporate purposes.

Skyfame's ratings are constrained by its scale, which is smaller than most of 
its 'B' rated peers' CNY20 billion-30 billion and 'B-' rated peers' CNY10 
billion-20 billion. Fitch expects Skyfame's contracted sales to expand to CNY12 
billion in 2019, and the company is on track to meet this target after having 
achieved CNY5.3 billion in 1H19, ahead of its half-year target of CNY4.2 
billion. The ratings are also constrained by Skyfame's high leverage, measured 
by net debt/adjusted inventory, of 53% at end-June 2019 (46% in 2018). Fitch 
expects its leverage to remain at 45%-55% in the next two to three years as we 
estimate Skyfame will have to spend about 60% of sales receipts on land 
acquisitions yearly to achieve 20%-30% annual growth in contracted sales.

Its ratings are supported by a healthy EBITDA margin (1H19: 26%; 2018: 
30%) because of low land costs. Fitch expects Skyfame's EBITDA margin, excluding 
capitalised interest from cost of sales, to remain above 25% in 2019-2020. The 
company had unrecognised contracted sales of CNY11.7 billion at end-June 2019, 
which carried a gross profit margin of about 37%, higher than the recognised 
gross profit margin of 31% in 2018. Skyfame enjoyed a low average land cost of 
below CNY3,000 per sq m as of end-2018, or about 20% of its average selling 
price in 1H19, thanks to the company's land acquisition strategy of avoiding 
auctions and choosing to acquire sites through M&A, old-town redevelopments and 
preferential auctions.

Contact: 

Weimin Zhang

Senior Analyst

+852 2263 9636

Fitch (Hong Kong) Limited

19/F Man Yee Building

68 Des Voeux Road Central 

Hong Kong

Laura Long

Associate Director

+86 21 6898 7989

Media Relations: Alanis Ko, Hong Kong, Tel: +852 2263 9953, Email: 
alanis.ko@thefitchgroup.com; Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@thefitchgroup.com.

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