Fitch Ratings has assigned
The proposed notes are rated at the same level as CSC's senior unsecured rating because they will constitute its direct and senior unsecured obligations. CSC intends to use the net proceeds from the proposed notes to refinance existing debt.
KEY RATING DRIVERS
Residential Sales Support Performance: Fitch expects CSC to continue to rely on residential and multi-purpose properties in the next three years to provide cash flow for its land banking and construction needs, with trade-centre sales continuing to underperform in light of weak demand from SMEs. Contracted sales decreased by 8% yoy to
Stable Leverage: Fitch expects leverage - measured by net debt/adjusted inventory, including investment property at cost - to remain below 50.0% for the next three years if CSC maintains prudent land acquisitions and achieves satisfactory sales, as management plans. Leverage was largely stable at 43.6% in FY20 (FY19: 43.1%). Cash outflow for land acquisitions fell to
Stabilising Development Margin: Fitch estimates that CSC's overall development margin will stabilise at around 40.0%. The company's gross profit margin for property development, including capitalised interest, improved to 44.2% in FY20, from 39.9% in FY19, due to a higher average selling price. Trade centres and residential units accounted for 12% and 82%, respectively, of development revenue in FY20.
Rising Non-Development EBITDA: Fitch expects CSC's non-development EBITDA interest coverage to rise, but to remain below 0.6x for the next three years. This will provide only limited support to the rating in the short term, although the diversification will enhance the company's cash flow. Income from CSC's non-development business increased by 4% yoy to
DERIVATION SUMMARY
CSC's eight projects are in tier one and two Chinese cities, which are better located than those of the other Fitch-rated trade-centre developer,
CSC generated
KEY ASSUMPTIONS
Property development contracted sales to reach
EBITDA margin, excluding capitalised interest and government grants, sustained above 25% in FY21-FY23 (FY20: 33%)
Non-development income to increase by 10%-15% per year in FY21-FY23, with EBITDA margin of around 40%
Construction and land acquisition cash outflow to account for 50%-60% of sales proceeds in FY21-FY23 (FY20: 50%)
No changes in Recovery Rating assumptions from the rating action commentary published on
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Non-development EBITDA/cash interest expense sustained above 0.6x (FY20: 0.4x)
Net debt/adjusted inventory (including investment property at cost) sustained below 40%
Factors that could, individually or collectively, lead to negative rating action/downgrade:
EBITDA margin sustained below 20%
Net debt/adjusted inventory (including investment property at cost) sustained above 50%
Deterioration in liquidity or difficulty in debt refinancing
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
LIQUIDITY AND DEBT STRUCTURE
Tight but Manageable Liquidity: CSC had cash and cash equivalents of around
Fitch treats the puttable date of CSC's onshore bonds as the effective maturity date and includes all redeemed offshore debt as maturing in the next financial year. The put options were not exercised for the onshore bonds puttable in
DATE OF RELEVANT COMMITTEE
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
RATING ACTIONS
ENTITY/DEBT RATING RECOVERY
senior unsecured
LTB Ne w Rating RR4
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
(C) 2020 Electronic News Publishing, source