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Fitch affirms LVGEM ratings

Fitch Ratings affirmed the long-term foreign-currency issuer default rating on LVGEM (China) Real Estate Investment Co. Ltd. at B, with a stable outlook.

The rating agency also affirmed LVGEM's senior unsecured rating and the rating on its outstanding U.S. dollar senior notes at B. The senior unsecured rating has a recovery rating of RR4.

Fitch attributed the affirmation to the quality of the Hong Kong-based developer's investment properties, including its centrally located Shenzhen NEO Tower office buildings. Fitch noted the company's high-margin urban redevelopment projects in Shenzhen, strong rental EBITDA of over US$50 million per year and over US$1.5 billion in rental-deriving assets.

However, Fitch said the ratings are constrained by the company's small and fluctuating sales, limited geographical concentration and high leverage.

The agency expects LVGEM's contracted sales to reach 6 billion yuan in 2018 and 7 billion yuan in 2019. In 2018-2019, the company's recurring EBITDA is projected to surpass 500 million yuan, while leverage is expected to remain above 50%.

LVGEM anticipates the addition of about 12 million square meters of urban redevelopment projects through Wong Hong King, its controlling shareholder, Fitch noted.

As of Sept. 5, US$1 was equivalent to 6.83 yuan.