OREANDA-NEWS.  Fitch Ratings has affirmed Logan Property Holdings Company Limited's (Logan) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB-'. The Outlook on the IDR is Stable. Fitch has also affirmed Logan's senior unsecured rating and the ratings on its outstanding US dollar bonds at 'BB-'.

The China homebuilder's ratings are supported by strong contracted sales growth, improving financial metrics, lower leverage and stable profitability with EBITDA margin of over 25% for 2015. Its current scale of CNY20bn contracted sales and geographic concentration in Guangdong province constrains its ratings.

KEY RATING DRIVERS

Re-focus on Shenzhen: Fitch believes that acquiring more land in Tier-1 cities would enhance Logan's land bank quality, reduce sales risk and improve its overall operational flexibility, although margins will remain uncertain because of high land costs and potential policy intervention, such as purchase restrictions. The Shenzhen region in Guangdong province accounted for over 40% of Logan's 2015 contracted sales, and more than 70% of its land investment was in this area. We expect the Shenzhen region to continue to be Logan's main focus. The company's land bank was previously mainly in Shantou in Guangdong, and Nanning and Fongshing in Guangxi province, which are all lower Tier-2 or Tier-3 cities.

Strong 2015 Performance: Logan's contracted sales rose 54% to CNY20.5bn in 2015, above its revised sales target of CNY18bn. Robust sales and a 92% cash collection rate reduced its leverage, measured by net debt/adjusted inventory, to 32% at end-2015 from 37% at end-2014. The high sales turnover also helped Logan to maintain a healthy financial profile. The company expects contracted sales to continue increasing in 2016, although at a slower pace than in 2015.

Stable Margin and Strong Liquidity: Logan's EBITDA margin rose slightly to 27.4% in 2015 from 26.2% in 2014. Fitch expects the margin to remain stable at above 25% in 2016. The company's strong cash position with readily available cash of CNY8.6bn at end-2015 is enough to cover its short-term debt of CNY4.0bn. Fitch believes Logan's liquidity will remain healthy in the next 12-18 months, underpinned by its strong contracted sales and high cash collection rate.

Limited Geographical Diversification: More than 80% of Logan's contracted sales in 2015 were from Guangdong province, with the remaining mainly from Guangxi province. Furthermore, more than 50% of the Guangdong contracted sales were from the Shenzhen region. The company's geographic concentration is likely to continue in 2016, based on its existing land bank and expansion strategy. This concentration leaves Logan more vulnerable to economic volatility and policy changes in these regions compared with developers that are more geographically diversified across China.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
- Contracted sales continue to grow in 2016 but at a slower pace compared with 2015
- Land acquisitions increase in line with sales growth in 2016
- Higher average selling prices and unit land costs as the company becomes more focused in the Shenzhen region

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- EBITDA margin sustained below 25% (2015:27%)
- Net debt/adjusted inventory sustained above 40% (2015: 32%)
- Contracted sales / total debt sustained below 1.0x (2015: 1.0x)

Positive: No positive rating action is expected unless Logan is able to substantially increase its scale and diversify outside Guangdong province without compromising its financial metrics. This is not expected over the next 12-18 months.

FULL LIST OF RATING ACTIONS

Long-Term Foreign-Currency IDR affirmed at 'BB-'; Outlook Stable
Long-Term Local-Currency IDR affirmed at 'BB-'; Outlook Stable
Senior unsecured rating affirmed at 'BB-'
USD250m 9.75% senior notes due 2017 affirmed at 'BB-'
USD300m 11.25% senior notes due 2019 affirmed at 'BB-'
USD260m 7.7% senior notes due 2020 affirmed at 'BB-'