Moody’s has downgraded China South City (CSC) to B3 from B2 and its outlook has been changed to negative from ratings under review. The downgrade is based on weak credit metrics and high financing risks given its poor liquidity and sizeable amount of debt due over the next 12-18 months. As per Moody’s, “CSC’s cash holdings of ~HKD 9.4bn ($1.2bn) as of March 31, which includes restricted cash of HKD 3.7bn ($475mn) were not adequate to repay its short-term debt of HKD 16.4bn ($2.1bn). CSC will have about $1.3bn of offshore senior notes and RMB 2bn ($309mn) of domestic corporate bonds due by the end of December 2022. However, the currently volatile market conditions will hinder CSC’s ability to refinance through the debt capital markets.”
CSC has been taking measures, including selling assets and raising new funding, to address its maturing debt. Moody’s, however stated that there is uncertainty about whether the company can sell assets in a timely manner and raise funds to repay debts. However, the rating agency notes that CSC has 40-45% of its investment property assets valued at ~HKD 55.7bn ($7.2bn) unencumbered as of March 31. Moody’s expects CSC to utilize these assets to raise onshore debt to refinance some of its outstanding maturing debt. Moody’s projected that “CSC’s revenue/adjusted debt and EBIT/interest will remain weak at around 25-30% and 1.2x-1.4x, respectively, over the next 12-18 months, compared with 30% and 1.8x for the financial year ended March 2021”. This is largely because a slowdown in project delivery amid tight credit conditions in China will offset the company’s debt reduction.
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