Double trouble: Yanlord Land slapped with negative outlook twice

Both Moody’s and Standard & Poor's have revised their outlook on Yanlord Land from stable to negative.

In an announcement Moody’s said, “Moody's Investors Service has revised to negative from stable the outlook on Yanlord Land Group Limited's Ba2 corporate family rating. At the same time, Moody's has downgraded Yanlord's senior unsecured bond rating to Ba3 from Ba2 due to increased subordination risk. The rating action follows Yanlord's recently announced investment in a 50% equity stake in a residential property site in Shanghai for a cash consideration of around RMB1.7 billion which will be paid in five installments by July 2012. The site has a gross floor area of 143,363 square meters.”

Ken Chan, a Moody's Vice President and Senior Analyst, explained, “The negative outlook reflects Moody's concern that Yanlord's balance sheet liquidity will be reduced by the RMB1.7 billion payment for the Shanghai project and RMB1.8 billion for another recent acquisition of a 60% interest in a joint venture project in Tang Jia Wan District in Zhuhai, despite the attractive acquisition prices of both projects relative to the previous year's land prices”

Meanwhile Standard & Poor's Ratings Services also revised its outlook on the China-based real estate property developer to negative from stable. “In line with this revision, we also lowered the Greater China credit scale rating on Yanlord to 'cnBB+' from 'cnBBB-' and that on the notes to 'cnBB+' from 'cnBBB-'. At the same time, we affirmed the 'BB' long-term corporate credit rating on Yanlord and our 'BB' issue rating on the company's outstanding senior unsecured notes,” said Standard & Poor's.

"We revised the outlook to reflect Yanlord's weaker-than-expected contracted sales and its aggressive expansion despite the uncertain market conditions in China. The company's weak sales performance so far this year highlights its weaker-than-expected execution capability and its concentration in the high-end residential segment," noted Standard & Poor's credit analyst Frank Lu. He said they believe Yanlord's credit protection measures will weaken significantly in 2011-2012.