Being acquired can improve credit quality

Kirin Holdings' bid to buy the 54 per cent of Lion Nathan that it does not already own prompted Moody's Investor Service to place Lion Nathan's 'Baa2' long-term credit rating on review for possible upgrade and place the 'Aa3' rating assigned to Kirin Holdings on review for possible downgrade. Moody's said the acquisition could have a significant impact on Kirin's leverage and may result in a downgrade of the company's ratings by more than one notch. Nevertheless, this would still leave plenty of room for Lion Nathan's rating to move up.

Standard & Poor's said it would take no action on the 'BBB/Stable' rating assigned to Lion Nathan for the time being. Should a formal bid emerge that gains the support of Lion Nathan's board and shareholders, then acquisition by Kirin Holdings is likely to be positive for Lion Nathan's credit quality.

Repeating the rating action that it took on GPT the week before last, Moody's lowered its senior unsecured rating and subordinated debt ratings on Goodman Group to 'Baa2' from 'Baa1' and to 'Baa3' from 'Baa2' respectively, and left the ratings on review for further possible downgrade. "The downgrade is a result of Goodman's weakened financial metrics," said Clement Chong, adding: "It further reflects a highly uncertain outlook for asset valuations and rental yields with the likelihood that both will further deteriorate materially in the coming 12 to 18 months."

Goodman's ratings were placed on review for downgrade on March 2. The on-going review will focus on Goodman's ability to deleverage through equity raising and asset sales at a pace and materiality that matches likely changes in asset valuations and revenue deterioration and on the sustainability of Goodman's broader business model, given the current challenges faced by its funds management and development businesses.

S&P said last week that for Stockland to maintain its ratings at the 'A-' level, it must successfully navigate its residential division through the current economic slowdown, maintain sufficient liquidity to meet capital commitments and debt maturities, and benefit from capital retention from the adoption of a more conservative dividend payout policy tied to the group's FFO. This was S&P's response to Stockland Group's disappointing market update, in which it flagged inventory impairments, asset write downs etc., of up to $1.3 billion likely to arise from a review of its business operations now under way.

S&P went on to say that given management's past decisions, it believes that Stockland will consider a variety of measures to strengthen its prudential framework to ensure that its credits metrics, liquidity profile, and covenant headroom are consistent with the 'A-' rating assigned to the group.