Yanlord

Yanlord: Moody's changes outlook from stable to negative and downgrades senior unsecured bond rating to Ba3 from Ba2. due to liquidity concerns after a $1.7b invt of a 50% equity stake in Shanghai. Moody's also expects onshore borrowings to trend towards 15%-20% of its assets which raises risk. Given strong regulatory measures and challenging economic outlook in nxt 12 mths, Moody's is uncertain if co can attain its 2012 budget.

Co also announced Standard & Poor's revision of the outlook to negative from stable and also lowered the Greater China credit scale rating to 'cnBB+' from 'cnBBB-' and that on the notes to 'cnBB+' from 'cnBBB-'. At the same time, S&P affirmed the 'BB' long-term corporate credit rating on Yanlord and 'BB' issue rating on the co's outstanding senior unsecured notes. S&P expects Yanlord's leverage ratios to remain high, profit margins to decrease from over 50% to 40% in 2011 and 2012 and govt policies to impact negatively.
S&P will consider lowering the rating if:
(1) cash receipts from property sales are less than Rmb8b in 2011;
(2) Yanlord's debt-funded expansion remains aggressive; or
(3) its debt-to-EBITDA ratio exceeds 5x in 2011 and there are no signs of improvement

This follows news yday that 3 investors Peter Lim, Wee Ee Chao and Kuok Khoon Hong raised their stakes above 5% sparking a run up in the counter. The downgrades announced were not entirely unexpected as S&P had revised its outlook on last Friday 11 Nov. Yanlord now trades at 0.84x P/B at yday’s closing price from prev 0.74x.