Fitch cuts LVGEM (China), notes to B

Fitch Ratings said it downgraded LVGEM (China) Real Estate Investment Co. Ltd.’s long-term foreign-currency issuer default rating, senior unsecured rating and the rating on its outstanding dollar-denominated senior notes to B from B+.

The agency also removed LVGEM's ratings from rating watch negative and assigned a stable outlook. The recovery rating on the senior unsecured rating is RR4.

Fitch said it downgraded the ratings following the completion of LVGEM's HK$9 billion acquisition of a Hong Kong office building on Dec. 29.

“LVGEM's leverage, as measured by net debt/adjusted inventory, will increase to above 50% at end-2017 and Fitch expects leverage to remain above 45% in 2018-2019,” the agency said in a news release.

“The acquisition is more aggressive than the business plan the company previously shared with Fitch, and has crowded out the company's financial resources for its property development business.

“LVGEM's 2017 contracted sales were also affected by Shenzhen's stringent pricing policy in 2017 and Fitch expects LVGEM's project concentration in Shenzhen to continue to expose the company to regulatory uncertainties,” the agency added in the release.

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