"The change in outlook to stable reflects Shimao's improved sales execution after its adoption of a business strategy that aims at supplying more mass-market products," says Franco Leung, a Moody's AVP/Analyst.

In the first 10 months of 2012, Shimao achieved RMB39.2 billion in contract sales, or 128% of its original full-year target of RMB30.7 billion.

"Moreover, Shimao has reduced its refinancing risk by its successful conclusion of approximately USD670 million in offshore club loans," says Leung, also Shimao's lead analyst.

The multi-currency term loan has a maturity of 36 months and has financial covenants that are similar to those in its existing syndicated loans. The loan will fund the repayment of some of its short-term debt and lengthen Shimao's overall debt maturity profile.

"The change in outlook is also driven by Shimao's plan to reduce its debt leverage," says Leung.

Shimao has adopted a strategy of enhancing sales and slowing land acquisitions until debt leverage returns to a reasonable level, as measured by net debt to equity of around 70%. As of November 2012, Shimao had paid less than RMB4.0 billion in land premiums, far less than RMB11.0 billion in 2011 and RMB15.0 billion in 2010.

But Moody's expects the company will step up its land acquisitions in the next 12 months to a level supported by internal funding and without materially increasing its debt .

Moody's expects debt/total capitalization will improve to below 55% in the next 12-18 months and EBITDA interest coverage will improve to around 3.0-3.5x as more revenue will be booked on the back of the strong contracted sale achieved in 2012.

Shimao's Ba3 corporate family rating continues to reflect its track record of generating contract sales on a large scale, its diversified and well-located land bank, its pricing flexibility -- in view of its low-cost land bank -- and its portfolio of quality investment properties.

Shimao's ratings could be downgraded if (i) its sales performance weakens materially below its sales targets; (ii) its liquidity position weakens, as evidenced by a decline in its unrestricted cash balance, or a breach of its financial covenants or payment obligations -- for land purchases and construction -- well in excess of cash on hand and expected operating cash flow; or (iii) its debt leverage further deteriorates; that is debt to total capitalization rises above 55%.

The ratings could be upgraded if Shimao (1) continues to meet its presales targets; (2) maintains a sufficient cash balance to cover maturing debt in the next 12 months; (3) demonstrates that it has adequate room in complying with its financial covenants, such as EBITDA interest coverage of more than 3x; and (4) improves debt leverage to around 50% or below.

The principal methodology used in rating Shimao was the Global Homebuilding Industry Methodology, published March 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Shimao Property Holdings Ltd is a Grand Cayman-incorporated Chinese property developer that was listed on the Hong Kong Stock Exchange in July 2006. Together with its 64%-owned Shanghai A-share listed subsidiary, Shanghai Shimao Co, Ltd, the company has an attributable land bank of 38.8 million sqm distributed in 34 cities, mainly in eastern and northeastern China. Shanghai Shimao mainly develops commercial properties and has an attributable land bank of around 6.46 million sqm. Furthermore, it has 4 hotels in operation with a total of 1,994 rooms.

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Franco LeungAsst Vice President - Analyst Corporate Finance Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Gary Lau MD - Corporate Finance Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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