Franshion Properties, vie Hongkong Code: 817 $ https://www.moodys.com/research/Mood

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[b]Franshion Properties, vie Hongkong Code: 817 $



Announcement: Moody's: Franshion's 2014 results support its Baa3 issuer rating
Global Credit Research - 30 Mar 2015

Hong Kong, March 30, 2015 -- Moody's Investors Service says that Franshion Properties (China) Limited's 2014 results are in line with expectations and support its Baa3 issuer rating and stable outlook.

"Strong growth in property development revenue and stable rental income support Franshion's credit profile," says Gerwin Ho, a Moody's Vice President and Senior Analyst.

Strong growth in property development revenue has offset a decline in primary land development revenue, resulting in a 43% year-on-year increase in total revenue to HKD29.5 billion in 2014.

Property development -- which made up 74% of total revenue -- grew 126% year-on-year to HKD21.9 billion in 2014.

Meanwhile, revenue from primary land development declined 46% year-on-year to HKD3.7 billion due to weak market conditions.

Franshion reported 2% year-on-year growth in contracted sales to RMB21 billion, with a 27% year-on-year growth in property development contracted sales offsetting a 54% year-on-year decline in primary land development sales.

As a result, Moody's expects Franshion will recognize more revenue from property development contracted sales in 2015, which will support its overall revenue growth.

Franshion's gross debt level -- including 50% of perpetual convertible securities -- climbed to HKD49 billion in 2014 from HKD38 billion in 2013, as a result of its land acquisitions and project construction.

Its gross margin fell to 39.1% in 2014 from 44.4% in 2013 due to a change in its geographical mix for its property development revenue.

The higher debt level and lower gross margin reduced the company's EBITDA/interest coverage to 3.6x in 2014 from 3.7x in 2013.

Moody's expects Franshion to maintain EBITDA/interest at 3.0x-3.5x over the next 12 to 18 months, which is in line with its Baa3 rating.

Nonetheless, its revenue-to-debt ratio rose to 60% at end-2014 from 54% at end-2013. This level is lower than its peers, as it held part of its development for long-term investments.

The stable rental income from its quality investment portfolio, however, could partly mitigate this challenge. Franshion's gross rental income to gross interest expense -- including 50% of perpetual securities -- reached 0.55x in 2014.

"While Franshion's active land acquisitions and rapid expansion will increase its funding needs, we expect the company will maintain a stable credit profile and adequate liquidity to buffer its financial and execution risks," adds Ho, who is also the Lead Analyst for Franshion.

The company's increased use of joint ventures to develop sizable and high-cost projects could also partly mitigate its capital requirements and execution risks.

It had cash holdings of around HKD14.1 billion at end-2014, which covered the 3.45x in short-term debt at end-2014 (2.41x a year ago), and is also expected to support its land acquisition and construction costs in the next 12 to 18 months.

Franshion's stable outlook reflects our expectation that the company will be able to deliver contracted sales growth and maintain adequate liquidity to fund its expansion.

The principal methodology used in this rating was Global Homebuilding Industry published in March 2009. Please see the Credit Policy page on for a copy of this methodology.

Listed on the Stock Exchange of Hong Kong in 2007, Franshion Properties (China) Limited is a 63.5%-owned subsidiary of Sinochem Hong Kong (Group) Company Limited. Franshion develops commercial and integrated properties in first-tier and major second-tier cities in China. It has also invested in primary land development projects in Changsha, Hunan Province, Sanya, Hainan Province and Nanjing, Jiangsu Province.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history.

Gerwin Ho
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077