S&P cuts Shanghai Real Estate view to negative

Standard & Poor's said it revised its outlook on the long-term corporate credit rating on Shanghai Real Estate Ltd. to negative from stable and affirmed the BB- rating and the BB- senior unsecured issue rating on its $200 million 8.625% notes due 2013.

This follows the company's announcement that its 49%-owned associate, China New Town Development Co. Ltd. plans to issue a Chinese renminbi 1,239,600 million convertible bond. The proposed bond, which has a 5% coupon, is due 2010 and will be settled in U.S. dollars. The company said it plans to use the net proceeds to develop two new town developments at Wuxi and Shenyang, the agency said.

The outlook revision reflects the company's increasing risk appetite and rapid expansion plans, which have been largely funded by debt, the agency said. S&P said it is concerned that the company's aggressive land acquisition activities are likely to lead it to draw on more resources and capital requirements in the near future. While China New Town Development is preparing to list separately from Shanghai Real Estate and may be able to raise more funds and convert its proposed bond into equity, the success of its initial public offering is dependent on market conditions, the agency added.

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