Fitch affirmed LVGEM (China) Real Estate Investment Co. Ltd.'s long-term foreign-currency issuer default rating at B, with a stable outlook.
The ratings agency also affirmed the China-based real estate developer's senior unsecured rating and the rating on its outstanding U.S. dollar senior notes at B. Recovery rating on the company's senior unsecured rating is RR4.
The ratings reflect LVGEM's high-margin urban redevelopment projects in Shenzhen, China, and its investment property portfolio, including the NEO Tower office buildings in Shenzhen and Hong Kong. The ratings are also supported by the developer's recurring EBITDA/gross interest paid of 0.38x as at 2018-end, which is higher than most of its similarly rated peers.
Fitch also noted that the company's ratings were constrained by its high leverage, limited geographical concentration, and small and fluctuating contracted sales.
LVGEM's controlling shareholder, Wong Hong King, is planning to inject urban redevelopment project spanning roughly 12 million square meters in the Greater Bay Area of China into the company over the next few years. The ratings agency expects the injection to increase LVGEM's leverage, measured by net debt/adjusted inventory, to 55% by 2019-end from 54% in 2018.
