OREANDA-NEWS. Fitch Ratings has affirmed Sino-Ocean Land Holdings Limited's (Sino-Ocean Land) Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BBB-' with a Stable Outlook. The agency has also affirmed at 'BBB-' Sino-Ocean Land's foreign currency senior unsecured rating, the ratings of its USD500m 4.625% senior notes due 2019 and USD700m 6% senior notes due 2024 issued by Sino-Ocean Land Treasure Finance I Limited, and the ratings of its USD500m 5.95% senior notes due 2027 and USD700m 4.45% senior notes due 2020 issued by Sino-Ocean Land Treasure Finance II Limited.

KEY RATING DRIVERS

China Life Support: China Life Insurance Company Limited (China Life; A+/Stable) has positioned Sino-Ocean Land as its sole strategic real estate investment platform in China. It currently holds 29% of Sino-Ocean Land and is committed to owning no less than 25% in the future. China Life's linkage with the property developer is still strong and thus provides support for Sino-Ocean Land's rating level. China Life purchased USD700m out of Sino-Ocean Land's total senior notes issuance of USD2.4bn in 2014 and 2015, with Sino-Ocean Land's management indicating that it would participate if Sino-Ocean Land decides to raise equity.

Market Leadership: Sino-Ocean Land was one of the top 20 Chinese property developers by sales value in 2014. It maintained its market leadership in key cities, such as Beijing, Dalian, Tianjin and Zhongshan, which accounted for 57% and 56% of its revenue in 2014 and 2013. Contracted sales rose 12% in 2014 to CNY40bn. Sino-Ocean Land targets sales of CNY42bn in 2015, compared with its CNY73bn of saleable resources. Fitch expects the company to achieve the goal even though it chalked up only 23% of its sales target, or CNY9.7bn, in January-May 2015. We expect Sino-Ocean to have stronger sales in 2H15, as it launches more projects after delaying launches to await better market sentiment.

Focus On Land in Tier 1-2 Cities: Sino-Ocean Land's continuing focus on Tier 1 and tier 2 cities makes it well-positioned to take advantage of the strong rebound in the property markets of some Tier-1 cities, particularly Beijing, where Sino-Ocean Land generates a large percentage of its revenue. The company exited some Tier 3 cities in 2014 and entered Guangzhou, a Tier 1 city, in early 2015. At end-2014, more than 90% of Sino-Ocean Land's land bank was from Tier 1 and 2 cities, both by value and gross floor area, where the demand-supply dynamic is more balanced than in lower tier cities.

Increasing Leverage: Sino-Ocean Land's leverage, as measured by net debt/adjusted inventory increased to 40.5% in 2014 from 29.8% in 2013, due to more land acquisition, lower margin and a slow churn rate in 2014. The increasing investment in JV projects and local partners' lack of funding resources also helped to drive Sino-Ocean Land's leverage higher. Fitch expects its leverage to remain around 40% in 2016-2018.

Diversified Funding Channels: Sino-Ocean Land has long-term partnerships with over 14 onshore and offshore banks. Over the years, it has developed diversified funding channels, including onshore bonds and offshore bank loans and US dollar perpetual securities. Both China Life and another shareholder, Nan Fung Group, have demonstrated support through both equity and bond funding. The diversified funding channels have helped Sino-Ocean Land to maintain relatively low funding costs, which Fitch expects to remain at 6.5%-7% in the next few years.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
- Contracted sales reach management target of CNY42bn in 2015
- EBITDA margins stabilise around 17%-22% for 2015-2017
- Continuation of flexible land acquisition strategy, with land cost around CNY16bn-20bn for 2015-2017
- No problems in obtaining loans to finance construction costs for 2015-2017.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- EBITDA margin sustained below 20% (2014: 16.4%)
- Substantial decrease in contracted sales
- Net debt/adjusted inventory rising close to 50%
- Contracted sales/total debt sustained below 0.8x (2014: 0.8x)
- evidence of weakening linkage with China Life

Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- evidence of strengthening linkage with China Life
- There is no immediate positive rating pressure on the standalone rating given the limited scale and diversification of the company.