ข่าวประชาสัมพันธ์เศรษฐกิจ/การเงิน

GLP China Holdings Ltd. Assigned ‘BBB’ Rating; Outlook Stable

          SINGAPORE (S&P Global Ratings) Sept. 14, 2018--S&P Global Ratings today said it has assigned its 'BBB' long-term issuer credit rating to GLP China Holdings Ltd. (GLP China). The outlook is stable. GLP China is the largest provider of logistics space in China. 
          The rating on GLP China reflects our view of the company's status as a core subsidiary of GLP Pte. Ltd. (GLP; BBB/Stable/--). We equate the rating on GLP China with that on GLP. Changes in our assessment of GLP China's 'bbb' stand-alone credit profile (SACP) are unlikely to affect the rating.
          We believe GLP is highly committed to support GLP China if needed, given their strong strategic, operational, and managerial linkages. GLP China contributes a significant portion of its parent's revenue and EBITDA, at 60%-65% on a look-through basis. As the flagship subsidiary of the group and the major growth driver, the company has similar lines of business as the parent, and is closely associated with the group's growth strategy, name, and reputation.
          In our view, GLP China's operation and financial strategy is consistent with that of the group. While GLP China is responsible for its own day-to-day management and business, and has its own investment committee and decision making process, these are strictly guided by the parent. GLP China also has the same capital allocation, risk management structure, and risk return threshold as the broader group. In line with the group capital management, GLP China plays an important role in the group's deleveraging plan by raising funds from selling assets to associated funds. 
          Our assessment of GLP China's SACP reflects the company's dominant market position in China, good asset and tenant quality, healthy growth prospects, and deleveraging plan. GLP China's geographic concentration and execution risk associated with fast development temper these strengths. 
          GLP China is likely to remain the largest logistics space provider in China. Its total portfolio of completed gross floor area of 19.4 million square meter is 7x that of its closest competitor in China. GLP China's extensive network across 39 major cities and logistics hubs in China makes it the first choice among customers who have multi-location requirement. Customer stickiness is also high due to switching costs. As of June 2018, GLP China has about 50% of the leased logistics area in China, with multi-location customers and a retention ratio of about 60%. Repeat customers make up about 70% of new leases. 
          We believe GLP China's high quality assets, combined with its one-stop hub strategy, underpin its dominant market position. The majority of the company's assets are high-end modern logistic facilities at strategic locations in tier-1 or tier-1.5 cities in China. The design of the facilities enables GLP China to cater to expansion demand from e-commerce, cold storage, fast moving consumer goods, and retail. In addition, the company provides services of custom design of facilities and distribution network, logistic data collection and sharing with existing tenants, which distinguish it from other sole logistic facilities providers. As of June 2018, the company's portfolio is worth US$19 billion, with a steady lease ratio of 90% and an average weighted lease expiry of about 2.2 years.
          We expect GLP China to maintain its growth momentum over the next 12-24 months supported by its development and fund management platforms. We expect the company to execute 2.2 million–2.6 million square meter (sqm) development per year over the next two years. The fund management platform enables GLP China to ramp up growth by selling income-producing assets to its managed funds. During the first half of 2018, GLP China has injected US$0.6 billion assets into the CVA I fund. 
          Although GLP China's development pipeline is robust, the company faces execution risk associated with fast, debt-funded development in China's evolving logistics sector. We forecast that the company's annual capital expenditure will be US$1.1 billion–US$1.2 billion, which is significant relative to its cash flow. These development projects could be volatile through a property cycle and bring pressure to working capital management. Nevertheless, we believe GLP China will mitigate these risks by securing pre-commitments from tenants and relying on asset recycling and capital partnering. 
          We believe GLP China has high geographic concentration because the company derives all its revenue and EBITDA from mainland China. GLP China's dominant market position and strategic partnerships partially offset the risk, in our view. GLP has benefitted from its relationships with shareholders and partners, especially Chinese state-owned enterprises (SOEs), including China Life, China Development Bank International, China Post Insurance etc. These linkages support GLP China's land procurement, enabling it to develop properties that are built to suit tenants, and ensure high leasing commitments prior to project completion. Despite recent challenges in land bank replenishment, GLP China's land reserves of about 16.1 million sqm should sustain development for the coming five years. 
          GLP China's sale of assets for the next two years is likely to be markedly higher than in previous years. We estimate the company will sell about US$1.2 billion assets to its associated funds in both 2019 and 2020, compared with US$0.6 billion sold in 2018. Its development EBITDA is likely to peak at US$325 million-US$330 million in 2019 and 2020 before stabilizing at US$270 million-US$280 million per year. 
          We expect GLP China's total debt to peak at US$6.6 billion by December 2018. This will result in a temporary dip of financial metrics for the year. However, in line with the group strategy of deleveraging using asset injections, GLP China is likely to gradually reduce debt to about US$5.6 billion by 2020 using proceeds from asset sales. We forecast the company's ratio of funds from operations (FFO) to debt to be 10%-12% in 2019 and 2020. 
          However, GLP China may increase its leverage beyond our expectation to pursue strategic opportunities. Our ratings incorporate GLP China management's willingness to leverage its balance sheet to 45%, based on the debt-to-assets measurement. If the company raises its leverage close to 45% on a look-through basis, its financial ratios will be weaker than our current expectation. We therefore assess the company's financial policy as negative.
          The stable outlook on GLP China reflects the outlook on GLP and our expectation that GLP China will remain a core subsidiary of the parent over the next 24 months. 
          The stable outlook on GLP reflects our expectation that the company will be disciplined in its growth and deleveraging plans, such that its FFO-to-debt ratio remains above 9% over the next 12-24 months. We expect GLP to maintain its current high occupancy rates from stable operating conditions in the period. We also expect continued support from new shareholders as the company executes its operating strategy.
          We may lower the rating of GLP China if any of the following occurs: 
          - We lower the rating on GLP. This could happen if: (1) GLP's contribution from look-through development earnings rises above 30% of EBITDA on an ongoing basis; (2) it materially increases its exposure to weaker markets, speculative developments, or undertakes sizable debt-funded acquisitions; or (3) GLP's contribution and concurrent debt from its financial services division increases above our expectation. Evidence of rating pressure would be the FFO-to-debt ratio weakening below 9% on an ongoing basis.
          - GLP China's integration with GLP shifts such that we no longer consider it to be a core subsidiary. This could be evidenced by GLP China's contribution to consolidated cash flow falling or GLP's shareholding in GLP China declining below 50%.
          We may raise the rating on GLP China if we raise the ratings on GLP and GLP China maintains its core strategic relationship within the group.