The proceeds will be used to refinance existing trust loans, acquire land parcels, and for general corporate use. The notes are rated at the same level as Future Land's senior unsecured rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the company.
The final rating of the proposed notes is contingent upon the receipt of documents conforming to information already received.
Fitch says the key rating drivers are:
* Significant structural subordination: Access to cash flow is significantly restricted given that around 80% of contracted sales in 2012 were contributed by 54%-owned Jiangsu Future Land (JFL), and that 62.5% of its total land bank at end-2012 was owned by JFL. The presence of the significant minority interest in JFL also structurally restricts Future Land's access to the cash flow of JFL.
* Limited geographical diversification: Around 87% of its 12.6 million square metre land bank was in in Yangtze River Delta (YRD) at end-2012, exposing the company to uncertainties of local policies and the local economy.
* Fast sales turnover: Future Land's business profile is supported by its rapid sales turnover; contracted sales/total debt was 1.7x at end-2012. The company standardises its products and targets the mass markets of first-time buyers and homeowners looking to upgrade.
* Strong market position: Its strong market position in YRD helps the company build relationships with local governments, which serve to facilitate its development activity in the region. This should help maintain its moderate earnings before interest, tax, depreciation and amortisation margin of 20.5% over the next two to three years.
* Sound leverage: Net debt/adjusted inventory of the holding company excluding JFL is likely to increase to 35% at end-2013, after the proposed bond issue and subsequent inventory increase, from an estimated 17% at end-2012. Fitch expects leverage to remain healthy as the proposed bonds should speed up repayment of its trust loans, which in turn will decrease its funding cost.
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