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Yanlord Land upgraded to 'BB' from 'BB-': S&P

S&P Global Ratings has raised its long-term corporate credit rating on China-based real estate developer Yanlord Land Group from 'BB-' to 'BB', citing an improved financial position and good profitability.

It also raised its long-term issue rating on the company's outstanding senior unsecured notes to 'BB-' from 'B+'.

S&P said: "We upgraded Yanlord to reflect our view that the company can sustain its strong financial position over the next two to three years, driven by continued high profitability and good financial discipline. We also expect Yanlord's contracted sales performance to be steadier over the next 12 months, given we believe that the company will strike a balance between sales growth and achieving high selling prices."

Strong profitability is expected to be supported by the company's premium branding as well as its generally low-cost projects even in first tier cities in China, said the ratings agency. However, Yanlord's positioning could mean greater sensititivity to cooling measures and policy changes, S&P added.

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While S&P estimates that the company will increase land purchases to about 12 billion yuan per year - or 40 per cent of its annual sales - it expects Yanlord to remain "profit-focused", and take a diversified approach to land purchases, including urban redevelopment, primary land development, and joint ventures.

S&P added: "The stable outlook reflects our view that Yanlord will continue to be disciplined in its debt-funded expansion in the next 12-24 months. We also expect the company to maintain satisfactory sales and an EBITDA margin above 30 per cent in the forecast period."

The rating could be downgraded, however, if Yanlord's debt-to-EBITDA ratio weakens to above four times on a sustained basis. While an upgrade in the next 12 months is "less likely", S&P said it could raise its rating if the debt-to-EBITDA ratio improves to below three times on sustained basis, while it "significantly" improves its diversity and scale. The company's leverage as debt-to-EBITDA was below 3.0 times in the past two years.

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