Fitch Ratings has affirmed the Long-Term Foreign-Currency Issuer Default Rating (IDR) of
The Outlook is Negative Outlook. Fitch has also affirmed the senior unsecured rating at 'B-', with a Recovery Rating of 'RR4'.
The affirmation reflects our view that CSC is likely to repay its offshore bonds due 2H22, mainly using proceeds from equity transactions and asset disposals. CSC successfully obtained some new back facilities, after
The Negative Outlook reflects CSC's weak sales and tight liquidity and its lack of sufficient funding to repay its 1H23 offshore bond maturities.
At the same time, Fitch has chosen to withdraw CSC's ratings for commercial reasons.
Key Rating Drivers
Tight Liquidity: CSC's liquidity is tight. It reported total cash of
New Credit Facilities: CSC obtained a new credit facility of
Completed Asset Disposals: We expect CSC to repay its
Large Maturities: We believe the source of funding to repay CSC's offshore bond maturities in 1H23 is uncertain. CSC has
Declining Contracted Sales: We expect CSC's property sales to remain weak in FY23, at
Weaker Profitability: CSC's gross profit margin declined to 29% in FY22, from 44% in FY21, following the recognition of property sales with lower average selling prices and weaker margins. We expect CSC's return efficiency to remain at a low single-digit percentage in FY23. This may improve if CSC is able to lower its leverage after repaying all its offshore bonds by FY24.
Sufficient Land bank: CSC has been prudent in managing its land acquisition outflows to maintain its moderate leverage. We do not expect CSC to acquire any new land in FY23 in view of its tight liquidity. CSC had 7.8 million square metres of unsold residential and multi-purpose properties available for sale at end-FY22, which is sufficient for the next five years.
Derivation Summary
CSC's ratings are driven by its tight liquidity. Its contracted sales scale is much smaller than that of other 'B' category peers, given its focus on development within its trade centres. The company's return efficiency is also lower than that of peers, as it has relatively high level of debt and minimal recognised EBITDA. CSC's leverage of around 50%, measured by net debt/net development property assets, is sufficient for the 'B' category rating.
Key Assumptions
Annual contracted sales of about
No new land acquisitions in FY23 and FY24
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that CSC would be liquidated rather than reorganised as a going-concern, as the former would yield a substantially higher recovery value.
We assume a 10% administrative claim.
We applied an advance rate of 80% to account receivables. This treatment is in line with other Chinese developers.
We applied an advance rate of 50% to net property inventory. CSC's large inventory of non-residential properties may lower the visibility of its EBITDA margin.
We applied an advance rate of 50% to property, plant and equipment. This treatment is in line with other Chinese developers.
We applied an advance rate of 26% to the book value of investment properties. This is based on a 6% rental yield after considering the rental yields and locations of these assets.
As available cash is less than the total amount of note payables and trade payables (construction fees and retention payables), the net amount of note and trade payables are included in the liability waterfall.
The allocation of value in the liability waterfall results in a Recovery Rating corresponding to 'RR4' for the senior unsecured debt.
RATING SENSITIVITIES
Rating Sensitivities are not applicable, given the withdrawal of the ratings.
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 Liquidity: CSC reported total cash of
Issuer Profile
CSC develops and operates large-scale, integrated logistics and trade centres in mainland
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.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Following the withdrawal of ratings for CSC, Fitch will no longer be providing the associated ESG Relevance Scores.
RATING ACTIONS
Entity / Debt
Rating
Recovery
Prior
LT IDR
B-
Affirmed
B-
LT IDR
WD
Withdrawn
B-
senior unsecured
LT
B-
Affirmed
RR4
B-
senior unsecured
LT
WD
Withdrawn
RR4
B-
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VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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