Zendai Bund deal prompts Moody's review

PUBLISHED : Wednesday, 03 February, 2010, 12:00am
UPDATED : Wednesday, 03 February, 2010, 12:00am

Shanghai Zendai Property has requested its shares be suspended from trading after revealing it would pay a record 9.22 billion yuan (HK$10.5 billion) for a prime commercial site on the Bund, a purchase that prompted Moody's to put some of its debt under review.

Analysts said the deal raised the possibility that the developer might need to raise additional funds to complete the transaction.

The firm, chaired by Dai Zhikang who specialises in security investments, requested the halt in trading pending an announcement regarding 'price sensitive information'. The shares traded at 31.5 HK cents before trading was suspended.

Shanghai Zendai is a mainland developer focusing on the development, investment and management of residential and commercial properties in China.

The Bund site acquisition prompted Moody's Investors Service to put Shanghai Zendai Property's B2 corporate family and senior unsecured ratings on review for a possible downgrade.

It said the review followed confirmation by Shanghai Zendai that it had won the site and had already paid a deposit of 450 million yuan.

'The scale of the transaction is substantial compared to Shanghai Zendai's total assets of HK$8.8 billion as of June 2009,' said Kaven Tsang, an analyst at Moody's Asia Pacific.

He said Shanghai Zendai was considering jointly developing the land with investors, but the shareholding structure and co-operation details had not yet been finalised.

With estimated cash holdings of about HK$1.3 billion, Tsang said Shanghai Zendai would have to raise additional debt to fund the transaction even if it decided to bring in other investors.

In its review, Moody's said it would focus on the investment structure and funding strategy of the project and the impact of the transaction on Shanghai Zendai's credit profile.

The deal might also affect Shanghai Zendai's existing US$143 million debt, due to mature in 2012, Tsang said.

Michael Wu, a director in Fitch Ratings' Asia-Pacific corporates team, said the agency would wait for the company announcement before reviewing its credit rating.

'There are lots of uncertainties at the moment,' he said.

Shanghai Zendai has projects under development in 12 cities in three regions.