This review follows CSC's response on 5 December 2012 to a news article alleging that some of its projects do not comply with certain legal requirements in China.
RATINGS RATIONALE
"Moody's concern is that CSC has not received all certificates and permits from the local governments for some of its projects in a timely manner and which could in the long term delay sales and increase development costs as it carries out measures to meet the relevant requirements," says Zou Jiming, a Moody's Analyst. "If the financial impact from this non-compliance is significant, it would pressure the company's current ratings."
"The issue also indicates that CSC's approach to the management of its projects is aggressive and that it has under-estimated development risk," says Zou, also a lead analyst for CSC.
In its 5 December 2012 announcement, CSC said that was still coordinating with the respective local governments of its projects for seeking various development approvals, and that it will be subject to fines and additional land premium payments for some of its projects.
Moody's will focus its review on the following:
1) The speed of reducing inventory which don't have all certificates and permits from the government.
2) The expected payments to be made to rectify the permits from the government.
3) The execution risk of the business model going forward.
The principal methodology used in rating China South City Holdings Limited was the Global Homebuilding Industry Methodology published in March 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
China South City (CSC), listed on the Hong Kong Stock Exchange, is one of the developers and operators of large scale integrated logistics and trade centers in China. The company operates one integrated logistics and trade center in Shenzhen and is developing new trade centers in Nanning, Nanchang, Xian, Harbin and Zhengzhou. It reported HKD3.7 billion in revenues for the fiscal year ending March 2012.
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Jiming Zou Analyst Corporate Finance Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Gary Lau MD - Corporate Finance Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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