[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)
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