CIFI Holdings (Group) Co. Ltd.#s Proposed U.S. Dollar Senior Unsecured Notes Assigned #B+# Rating

Stocks and Financial Services Press Releases Tuesday January 16, 2018 16:13
HONG KONG--16 Jan--S&P Global Ratings

HONG KONG (S&P Global Ratings) Jan. 16, 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 CIFI Holdings (Group) Co. Ltd. (CIFI; BB-/Stable/--). 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 CIFI's capital structure. As of June 30, 2017, the company has around Chinese renminbi (RMB) 22.1 billion in unsecured debt at the subsidiary level and secured debt combined, out of total debt of RMB39.6 billion.

We expect CIFI to use the notes proceeds for refinancing existing debt and general corporate purposes. In our view, the new issuance will help the company to repay onshore corporate bonds and offshore club loans maturing in the first quarter of 2018, lengthen its debt maturity profile, and control its average funding cost.

We view CIFI's sales performance in 2017 to have been strong, will full year sales of RMB104 billion exceeding its annual target by 30%. At the same time, joint venture (JV) projects' contribution to sales increased to 47% from 45% in 2016. This is consistent with CIFI's active use of JVs in land acquisition in recent years. In our view, the company's debt will surpass RMB50 billion in the first quarter of 2018. The new issuance will not significantly affect the company's overall leverage.

The stable outlook reflects our expectation that CIFI will control its leverage despite aggressive scale expansion. We forecast that the company will achieve fast sales and revenue growth in the next two years, while maintaining stable profitability. In our base case, CIFI's see-through debt-to-EBITDA ratio after proportionally consolidating JVs will be 4.5x-5x in the next 12 months due to increasing project delivery and revenue recognition, which underpin the rating.


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