Kerry Properties' net debt to swell to HKD27.6bn

Analyst predicts it will be the 2nd highest geared developer in Hong Kong.

According to Nomura, while Kerry’s net debt improved in 2H12 by 3.4% h-h to HKD15.9bn with gearing at 22.4%, once we take into consideration Kerry’s recent HKD11.7bn land purchase in Homantin, we estimate that net debt will swell to HKD27.6bn and gearing will rise to 38.9%.

Here's more:

With gearing at 39%, this would effectively make Kerry the second highest geared HK developer after New World Development (44.5% net debt to shareholders’ fund and 34.8% net debt-to-total equity, based on company data). 

Although gearing of 39% is only 4pp higher than Kerry’s historical peak of 35%, it increases the importance of Kerry successfully achieving its contract sales targets in order to de-gear. As it stands, Kerry expects 2013 contract sales to be around HKD11bn. 

Compared to its capex budget of HKD6-7bn, we estimate Kerry should be able to generate surplus sales proceeds of around HKD4-5bn to help bring down its gearing. 

Assuming that everything goes according to plan, we estimate that Kerry’s net debt and gearing will be reduced back down to HKD23bn and 31% this year. In normal circumstances, we would be less concerned but given our cautious outlook on the market, we would prefer to have more slack in the system in case the housing market were to slow further either on policy or macro events.