Aggressive business strategy of Shanghai Zendai Property results in high execution challenges

Posted On Wednesday, 09 April 2014 15:31 Published by
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Aggressive business strategy of Shanghai Zendai Property 'has resulted in high execution challenges', says Moody's.

Modderfontien Shanghai Zendai Property

The aggressive business strategy of Shanghai Zendai Property, the Chinese developer behind the ambitious build plan in Modderfontein ,"has resulted in high execution challenges"‚ says rating agency Moody's.

The agency said this week that Zendai's recent land payments were substantial and the scale of the new projects was large relative to Zendai's existing business operation.

Chemicals and explosives company AECI concluded an agreement in November to sell the bulk of its surplus property assets in Modderfontein and its property development business to Zendai for R1bn.

Zendai's aim to create a new financial hub for Africa at the site‚ which is near Sandton. It will cost about R77bn. Meanwhile‚ the firm also bought a piece of land in China for R1.5bn last month.

Given Zendai's market capitalisation of only about R2.6bn in Hong Kong‚ it would be punching well above its weight should its development plans materialise.

Zendai's B3 corporate family rating remained unchanged after its "weak 2013 results" release. The firm's credit profile "remains constrained following several large land-related transactions in early 2014"‚ Moody's said.

A Moody's assistant vice-president and analyst‚ Jiming Zou‚ said Zendai's rating at the lower end of the single B category was due to its "slow sales‚ high debt level and overall weak credit metrics that constrain its financial flexibility".

Moody's said the firm faced difficulties in improving its contracted sales due to its "limited financial flexibility" and lacklustre sales for projects in low-tier cities.

Zendai's revenue rose 98% in its 2013 financial year to R3bn lower than in 2010 and 2011. Its gross margin narrowed to 28.8% from 39.2%‚ "reflecting the recognition of low-margin projects in its completed properties".

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