S lowers ratings on Renhe to ‘B
March 15 Renhe liquidity is likely Canada Goose sale to weaken in the next year due to the company slowing property sales, Canada Goose Parka materially longer collection period for sales proceeds, and high receivable counterparty risk. Ltd. to from canada goose coats on sale The outlook is negative. At the same time, we lowered our issue rating on the company senior unsecured notes to from We also lowered our Greater China credit scale rating on Renhe and its senior unsecured notes to from We removed all the ratings from CreditWatch, uk canada goose where they were placed with negative implications on Dec.
We anticipate that Renhe liquidity sources will likely cover liquidity uses by about 1.0x over the next buy canada goose jacket 12 months. Coverage was more than 1.2x canada goose uk outlet a year earlier. Renhe cash balance is canada goose coats also likely to stay less than Chinese renminbi (RMB) 4 billion, our downgrade threshold for the company at the rating level. We have set this trigger because Renhe has very limited access to bank credit in China.
Renhe property sales are likely to remain weak in 2012 due to subdued demand for property investment in China. We expect cash collection from individual canada goose uk shop buyers to be significantly slower than before because the bank lending environment is likely to Canada Goose online remain tight in the next six to 12 months. cheap Canada Goose The majority of Renhe buyers need loans to pay 70% of the contracted prices. In our base case scenario, we expect the company contract sales to be about RMB7 billion in 2012, flat compared with 2011. We estimate that the company will receive only about 15% of such sales in 2012, similar to the level in 2011.
Renhe has less flexibility to scale back construction spending on presold projects than residential property developers This is because it receives only small prepayments (5% 10% of the contracted price) from buyers on presale dates. canadian goose jacket The company has to complete properties before it can receive a full down payment (up to 30% of the contracted price); it depends on buyers ability to obtain bank loans for the canada goose factory sale rest. In contrast, residential developers have full access to canada goose sales proceeds during presale periods.
Renhe block sale of offshore project holding companies to individual investors on deferred payment terms last year increased its working capital requirements Canada Goose Jackets and the concentration canada goose black friday sale of counterparty risks. canada goose black friday sale Renhe has not disclosed information about its buyers, so their credit quality is canada goose store unclear to us. We expect counterparty risks to remain high because the company may continue to cheap canada goose uk pursue project company sales. Renhe has indicated that it may sell project holding companies in a more transparent manner and with shorter https://www.officialcanadagoosesoutlet.ca payment Canada Goose Coats On Sale terms. But it has not yet established any meaningful record. We expect that the majority of canada goose clearance Renhe overdue block sales receivable Canada Goose Outlet of RMB2.0 billion as of Nov. 30, 2011, remain outstanding.
In our view, Renhe weakening liquidity highlights the risk associated with the company business model. We believe the model is vulnerable to a correction in the property market and credit tightening in China. Regulations governing projects Canada Goose Online that Renhe developed from underground civil air uk canada goose outlet defense facilities are ambiguous in many areas. Any changes in these regulations could raise questions about the sustainability of the company business model. In particular, the lack of well defined land use rights is an canada goose clearance sale obstacle to securing construction loans or mortgage loans onshore. These rights are typically required for collateral. Renhe has very limited access to banking facilities because it does not hold titles to the properties it buy canada goose jacket cheap has developed. Renhe has made little progress in securing canada goose uk black friday bank loans from financial institutions in the past two years. In addition, regulations on project tendering processes are not transparent, lowering the visibility of Renhe future project reserves.