OREANDA-NEWS. Fitch Ratings says that ratings on Guangzhou R&F Properties Co. Ltd. (R&F; BB/Negative) and its bonds due in 2016, 2019, 2020 will not be affected even if the proposed waivers and amendments in the consent solicitation announced on 24 March 2016 are adopted.

The principal purpose of the consent solicitation is to obtain waiver from bondholders to avoid a technical default and give the company more flexibility in offshore and onshore debt-raising, dividend payouts and stock repurchases, hedging strategy, as well as investments in minority interests and financial products.

R&F breached the restricted payment terms as it distributed 2015 interim dividends without satisfying the Fixed Charge Coverage Ratio (FCCR) requirement, which the company had originally expected to satisfy. Final financial statements for the last 12 months to September 2015 indicated that the FCCR was between 2.5x-3.0x when dividends were paid; this was due to unexpected delays in the delivery of high-margin properties sold, and certain of its financing and refinancing plans of replacing high-cost debt with low-cost debt.

The discrepancy was a result of actual earnings not in line with management's expectation at the dividend declaration date, but failing to obtain waiver from bondholders would lead to an event of default.

The proposed amendments, if adopted, will provide R&F with more funding and operational flexibility to support its current expansion, though this would require higher indebtedness. Fitch does not expect our view on R&F to change solely due to the adoption of the proposed amendments. However, R&F's rating may come under pressure if more than 25% or more bondholders do not approve the waiver, or if weak churn and margin continue to exert pressure on leverage.

Major proposed amendments of the indentures include:

- lowering the fixed-charge coverage ratio requirement to not less than 2.50x from not less than 3.00x;
- redefining certain terms including "Consolidated EBITDA", "Consolidated Net Income", "Consolidated Interest Expense", which may result in an increase in its fixed-charge coverage ratio;
- increasing the purchase money indebtedness basket from 20% to 30% of total assets;
- increasing the general basket from USD15m to USD30m;
- increasing the permitted investment basket from 10% to 25% of total assets;
- removing FCCR requirement to dividends payment and share repurchases, provided dividends declared / paid or the considerations paid for stock repurchase do not exceed 25% of the consolidated profit for the year;
- loosening permitted investment provisions with regard to investments in minority interest, spin-off entities, trusts / funds / asset management plans primarily in real estate projects;
- raising the "Cross Default" threshold from USD10m to USD20m;
- carving out certain future subsidiaries organised outside the PRC from provision of any guarantee for the notes as long as the consolidated assets of all such subsidiaries that do not provide any guarantee does not exceed 20% of total assets; and
- amending the conditions for hedging obligations.