China South City Holdings# Proposed U.S. Dollar Senior Unsecured Notes Assigned #B-#

Stocks and Financial Services Press Releases Monday November 13, 2017 17:33
HONG KONG--13 Nov--S&P Global Ratings

HONG KONG (S&P Global Ratings) Nov. 13, 2017--S&P Global Ratings today said it has assigned its 'B-' long-term issue rating to a proposed issue of U.S. dollar-denominated senior unsecured notes by China South City Holdings Ltd. (CSC; B/Negative/--). The ratings are subject to our review of the final issuance documentation.

We rate the senior unsecured notes one notch lower than the issuer rating because of subordination risk. The proposed notes will rank behind a significant amount of secured debt and subsidiary level debt in CSC's capital structure. At March 2017, the company had around Hong Kong dollar (HK$) 26 billion in unsecured debt at the subsidiary level and secured debt, out of HKD 32.7 billion of total debt.

We expect CSC to use the majority of the bond proceeds to refinance existing debt and the remainder for general corporate purposes. In our view, the new issuance will help the company meet its short-term debt repayments before March 2018, manage its interest expenses, and lengthen its debt maturity profile.

We view China South City as on track to achieve its annual sales target of HK$11 billion-HK$12 billion in the financial year ending March 2018. First half sales results have shown growth of 26% year on year, which is in line with our base case, and we expect the company's recurring revenue to maintain 10%-15% growth as forecasted. In our view, the company's debt will moderately grow to HK$35 billion, although the new issuance will not significantly impact the company's leverage given the plan to refinance.

The negative outlook on the corporate credit rating on CSC reflects our view that the operating environment for the company will remain tough in the next 12 months amid weakness in trade center sales in China. We expect the company to curb its capital expenditure and maintain stable leverage in fiscals 2018 and 2019. Our base case anticipates that CSC's debt-to-EBITDA ratio will be around 13x-14x for fiscals 2018 and 2019.

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