TEXT-S&P Summary: Central China Real Estate Ltd.

We expect CCRE's projects to remain concentrated in Henan province. This is despite the

company's increased operating scale and number of projects. We believe that CCRE has limited

scope to mitigate economic conditions and policy risks in Henan. Nevertheless, policy risks are

lower than in markets in coastal regions because the property market in Henan is less developed

and more end-user driven.

CCRE's good sales execution is likely to support steady property sales, in our view. We

believe that the company's large number of projects across 24 cities in Henan mitigate the

effects of uneven implementation of the Chinese government's home purchase restrictions, and

varying economic and competitive conditions. In 2011, a difficult year for the Chinese property

industry, CCRE's contract sales were Chinese renminbi (RMB) 8.1 billion, or 111% of its

full-year target. The company's contract sales in the first four months of 2012 were RMB3.04

billion, a 32.6% increase from a year ago and meeting 33.8% of its full-year sales budget.

The company's increased land reserves in Zhengzhou should help it maintain its competitive

position, in our view. As of the end of 2011, CCRE has a land bank of 13.8 million square

meters, with an average cost of RMB706 per square meter, or less than 15% of the company's

recognized average selling prices in 2011.

CCRE benefits from the participation of CapitaLand Ltd. (not rated) at the board

level, and in strategic decisions and internal controls. CapitaLand is CCRE's second-largest

shareholder since 2006; it currently has a 27.1% stake.

In our base-case scenario, we expect CCRE's property sales and margins to be stable in the

next year. Visibility of the company's 2012 financial performance is good. However, CCRE's

leverage is likely to slightly weaken in 2012 compared with 2011, mainly due to the higher debt

to fund business expansion. We expect the company to maintain a debt-to-EBITDA ratio of 3x-4x in

2012, comparable to that of 'BB-' rated peers.

Liquidity

CCRE's liquidity is "adequate," as defined in our criteria. The company's good sales in 2011

and our expectation of satisfactory sales in 2012 should support its liquidity. We estimate that

the company's liquidity sources will exceed uses by more than 20% in 2012. Our view is based on

the following factors and assumptions:

-- CCRE's contract sales will be RMB8 billion-RMB9 billion in 2012.

-- The company had an unrestricted cash balance of RMB3.26 billion at the end of 2011.

-- At the end of 2011, the company had RMB2.91 billion in debt due in 12 months. This does

not include the RMB1,849.9 million senior notes balance that the company lists as "current

liabilities" due to a certain covenant breach at the end of the reporting period. As per our

knowledge, CCRE obtained consent waiver from bondholders in March 2012, and these notes will now

mature in 2015.

-- In April 2012, CCRE issued S$175 million in senior unsecured notes.

-- CCRE had limited committed land premiums payable in 2012.

-- We have not taken into account the possibility of an asset sale (e.g. investment

properties, land plots) or refinancing.

-- The company has some room to cut its budgeted costs for construction and new land

acquisitions.

We believe CCRE has good banking relationships in Henan. As of Dec. 31, 2011, the company

has about RMB3.88 billion in undrawn uncommitted project loan facilities from Chinese banks.

Nevertheless, the company may face a delay in drawing down on the facilities, given the

tightened credit conditions in China.

An equity trust financing arrangement between CCRE and Bridge Trust Co. Ltd., a Zhengzhou

government backed trust company, will further support CCRE's financial flexibility and liquidity

in the coming 12 months. In 2011, CCRE raised RMB808 million from equity trust financing. CCRE

announced a new trust arrangement of RMB900 million with Bridge Trust on April 25, 2012.

Outlook

The stable outlook reflects our expectation that CCRE will generate satisfactory property

sales and have good financial flexibility to meet its short-term obligations. We anticipate that

the company will maintain a debt-to-EBITDA ratio of 3x-4x in 2011-2012 and have at least RMB1

billion in unrestricted cash annually while pursuing its high-growth strategy.

We may lower the rating if CCRE's property sales and margins are materially weaker than our

expectation, and its debt-funded expansion is more aggressive than we expected. We consider a

debt-to-EBITDA ratio above 4.5x and EBITDA interest coverage below 3x as indicators of such

weakness.

The likelihood of an upgrade is limited due to CCRE's debt-funded expansion and the

uncertain property market in China. We may raise the rating if the company can maintain

consistent financial performances (including profitability) and have a record of operating on a

larger scale. This could happen if CCRE maintains its market position in Henan, sustains its

credit ratios, and operates on a larger business scale.

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