S&P rates Kerry Properties bond BBB-

Standard & Poor's said it assigned its BBB- issue rating to the proposed issue of a HK$2.35 billion convertible bond by Gainlead International Ltd. The proposed bond is due 2012 and will be callable on or after Feb. 22, 2010. Gainlead International is an indirect, wholly owned subsidiary of Kerry Properties Ltd., rated BBB- with stable outlook, which will guarantee the proposed bond. The issue rating is subject to a review of the final issue documents.

While the proposed bond has a zero coupon and will not add any interest burden, it will increase Kerry Properties' debt leverage. Over the past six months, the company has been active in the debt market, issuing $420 million in 10-year fixed rate notes in August 2006. As a result of this issue and the proposed convertible bond, Kerry Properties' debt should increase by 50% from the HK$11.4 billion reported at the end of June 2006, assuming no debt repayments or other additional bank borrowings have been made since that time, S&P said.

The rating reflects the company's strong recurring income, ownership of high-quality real estate assets, strong liquidity and good financial flexibility, S&P said. These strengths are tempered by its increasing exposure to China's high-risk real estate sector and a rapid expansion program, which is weakening its financial profile, the agency added.

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