Fitch: Beijing Capital Land's Leverage Peaked, Destocking to End
OREANDA-NEWS. Fitch Ratings expects China-based Beijing Capital Land Ltd.'s (BCL; BB+/Stable) leverage to have peaked in 2015. The company's destocking in lower-tier cities will gradually come to an end while growth in land acquisition costs will flatten in 2016.
BCL's change in its geographic focus drove a substantial increase in land acquisition costs in the past two years. Land investment in 2015 rose by 16% to CNY22.4bn, after a 66% jump in 2014. More than 70% of the land acquired was in Beijing and Shanghai in 2014 and 2015, as the company steered away from lower-tier cities that are bogged down by an oversupply of residential properties.
BCL's leverage, measured by net debt/adjusted inventory, increased to 68% in 2015 from 64% in 2014, the company's 2015 results showed. However, leverage was off a historical high of 75% at 30 June 2015. Fitch believes that BCL's leverage will decline as it completes its aggressive land bank replenishment in Tier 1 and 2 cities and future land investment stays flat. BCL will start to benefit from a better land bank structure, with 80% of the land by value in five core cities: Beijing, Shanghai, Tianjin, Chongqing and Chengdu.
At the same time, BCL's painful destocking in lower-tier cities, which caused a significant drop in EBITDA margin to only 6% in 2015 from 17% in 2014, is closer to an end. Margin is likely to revert to a normal range of 15%-20% in later 2016 when BCL begins to recognise revenue from higher-margin projects presold in 2015.
BCL has also announced that it plans to apply for an A-share listing in mainland China. The amount to be raised is still uncertain at this stage. Fitch thinks that an A-share listing will broaden BCL's future funding channels, provide an additional liquidity source and lower the company's funding costs.
The 2015 results were in line with Fitch's expectations, and support the company's rating.
Комментарии