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China South City Holdings Ltd.’s Proposed U.S. Dollar Senior Unsecured Notes Assigned ‘B-‘ Rating

          HONG KONG (S&P Global Ratings) May 17, 2018--S&P Global Ratings today 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 issue rating is subject to our review of the final issuance documentation. 
          We rate the senior unsecured notes one notch lower than the issuer credit rating because of subordination risk. The proposed notes will rank behind a material amount of secured debt and subsidiary-level debt in CSC's capital structure. 
          We expect CSC to use the majority of the notes' proceeds for refinancing existing debt and the rest for general corporate purposes. CSC has over Hong Kong dollar (HK$) 9 billion of short-term domestic borrowings due by September 2018, including a RMB2 billion domestic medium-term note (MTN) due in July 2018. In our view, the new issuance will help the company to meet debt repayments, lengthen its maturity profile, and manage its average funding cost. 
          In our view, CSC's leverage will remain stable compared with a year ago, and the new issuance will not have a significant impact on the leverage level. We view CSC's sales growth of 39% year-on-year in fiscal 2018 to be satisfactory, slightly exceeding the high end of its RMB10 billion-RMB12 billion sales target. 
          At the same time, we estimate the company's recurring income to have grown about 25%, driven by solid performance in its property management and outlets' operations as several sites gradually mature. However, the company's sales of its trade center's commercial properties remain lackluster, given the lack of economic growth momentum across its trade center locations.
          The negative rating outlook on CSC reflects our view that the company's operating environment will remain tough over 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 fiscal 2019. Our base case anticipates that CSC's debt-to-EBITDA ratio will be around 13x-14x for fiscal 2018.