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Johannesburg - Moody's Investors Service has placed on review for possible downgrade the ratings of Growthpoint Properties [JSE:GRT].
Earlier this week, Growthpoint announced that it has formally agreed to purchase 50% of Lexshell 44 General Trading, the company that owns the V&A Waterfront properties in Cape Town for R4.85bn.
The acquisition represents half of a R9.7bn joint venture with Public Investment Corporation, the South African government employees pension fund.
"Moody's has placed the ratings under review for downgrade due to the potential execution and enhanced liquidity risks that could be involved in an acquisition of this size; and the current uncertainty regarding the ultimate financing structure for the transaction," said Lynn Valkenaar, a Moody's analyst.
"Nevertheless, there are scenarios under which Moody's believes that the ratings could be confirmed at their current level," added Valkenaar.
Moody's noted that the V&A purchase is a sizeable transaction for Growthpoint - its half-share of the acquisition represents around 11% of the company's consolidated total assets as of financial year-end 30 June 2010. However, because of the high quality of the V&A's assets, the acquisition is likely to have a neutral to positive impact on the quality and diversification of Growthpoint's property holdings overall, in Moody's view.
Furthermore, given Growthpoint's solid management structure, the rating agency does not expect the acquisition to have any negative impact on senior management's ability to operate the business.
Moody's review for possible downgrade will focus on the ultimate financing structure chosen for this acquisition and forecast impact on Growthpoint's credit metrics; the potential impact on the company's liquidity risk profile; and how the joint venture with PIC will work in practice in terms of managing the acquisition going forward, it said.
Earlier this week, Growthpoint announced that it has formally agreed to purchase 50% of Lexshell 44 General Trading, the company that owns the V&A Waterfront properties in Cape Town for R4.85bn.
The acquisition represents half of a R9.7bn joint venture with Public Investment Corporation, the South African government employees pension fund.
"Moody's has placed the ratings under review for downgrade due to the potential execution and enhanced liquidity risks that could be involved in an acquisition of this size; and the current uncertainty regarding the ultimate financing structure for the transaction," said Lynn Valkenaar, a Moody's analyst.
"Nevertheless, there are scenarios under which Moody's believes that the ratings could be confirmed at their current level," added Valkenaar.
Moody's noted that the V&A purchase is a sizeable transaction for Growthpoint - its half-share of the acquisition represents around 11% of the company's consolidated total assets as of financial year-end 30 June 2010. However, because of the high quality of the V&A's assets, the acquisition is likely to have a neutral to positive impact on the quality and diversification of Growthpoint's property holdings overall, in Moody's view.
Furthermore, given Growthpoint's solid management structure, the rating agency does not expect the acquisition to have any negative impact on senior management's ability to operate the business.
Moody's review for possible downgrade will focus on the ultimate financing structure chosen for this acquisition and forecast impact on Growthpoint's credit metrics; the potential impact on the company's liquidity risk profile; and how the joint venture with PIC will work in practice in terms of managing the acquisition going forward, it said.
