Moody's affirmed its B2 corporate family rating on LVGEM (China) Real Estate Investment Co. Ltd., with the outlook revised to negative from stable.
The ratings action considers the company's low-cost land bank and strong profitability, with its gross margin exceeding 46% over the last three years, the highest among LVGEM's rated peers, Moody's said.
The rating affirmation is also supported by LVGEM's stable recurring rental income from its investment properties, which will cover around 0.4x of its interest expenses.
The change in outlook reflects Moody's view that the company will weaken its liquidity position and raise its debt leverage due to the planned acquisition of a mixed-use development project in Hong Kong for HK$9.00 billion from Wharf (Holdings) Ltd., to be funded partially by debt. The asset is not expected to generate any revenue until late 2019, Moody's noted.