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Moody : China Aoyuan's investment in Australian credit negative

03/06/2015 | 03:55am US/Eastern

[ET Net News Agency, 6 March 2015] Moody's Investors Service said China Aoyuan Property

Group Limited's (03883) announced investment in a deluxe property project in Sydney,

Australia is credit negative, but has no immediate impact on its B2 corporate family

rating, B3 senior unsecured debt rating and stable rating outlook.

"China Aoyuan's new project in Australia will weaken its liquidity position and raise

its execution risk," said Gerwin Ho, a Moody's Vice President and Senior Analyst.

China Aoyuan will have to contribute an initial capital for its 70% interest in a joint

venture that has acquired a project located at 130 Elizabeth Street, Sydney's central

business district, for AUD121million. The joint venture will develop a a 38-storey

building with 148 luxury residential apartments and 2 retail shops. This initial capital

contribution will diminish its liquidity buffer in the next 12-18 months.

In addition, until it is able to arrange a construction loan for the project, China

Aoyuan will have to provide further cash support. Furthermore, all pre-sale proceeds are

restricted until delivery at final closing of the units.

The project poses execution risk because China Aoyuan has not yet established its brand

in Australia and has no experience operating in the country. Furthermore, the high-end

positioning of the project, with a high average per-apartment price of around AUD2.5

million, will limit the target customer pool. But the prime location of the project and

the limited land supply in the area partly mitigate these concerns over customer demand.

The execution risk is also lowered by co-branding the project with its joint venture

partner Ecove (unrated), a local property developer with experience in developing

mid-to-high end residential and retail projects in Sydney.

"However, China Aoyuan's financial profile will not be materially affected by the

relative small scale of the Australian project" said Ho, who is also the Lead Analyst for

China Aoyuan. (KL)

(c) 2015 ET Net Limited. All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info).

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