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Guorui Properties Ltd. Rating Lowered To 'CCC' On Uncertainty Over Imminent Refinancing; On CreditWatch Developing

  • We see increasing execution risks in Guorui's plan to refinance two offshore bonds totaling US$550 million that are maturing or puttable in March 2019.
  • The China-based property developer has presented a feasible refinancing plan. However, the implementation has been slower than our expectation, leaving little room for slippage.
  • We are lowering our long-term issuer credit rating on Guorui to 'CCC' from 'B-'. We are also lowering our long-term issue rating on the company's senior unsecured notes to 'CCC-' from 'CCC+'. We are placing the ratings on CreditWatch with developing implications.
  • We expect to resolve the CreditWatch by the end of March, 2019. We could raise the rating if Guorui sufficiently addresses its near-term debt maturities. We could lower the rating if successful refinancing appears unlikely.
On Feb. 4, 2019, S&P Global Ratings lowered its long-term issuer credit rating 
on Guorui Properties Ltd. to 'CCC' from 'B-'. At the same time, we lowered our 
long-term issue rating on the China-based property developer's outstanding 
senior unsecured notes to 'CCC-' from 'CCC+'. We placed the ratings on 
CreditWatch with developing implications.

We downgraded Guorui and put the ratings on CreditWatch with developing 
implications to reflect the uncertainty over the company's refinancing plan 
for its imminent debt maturities.

Guorui's execution of its refinancing plan is slower than our expectation, 
especially its potential offshore issuance. The company is still working on 
completing these deals. However, we believe repayment risks are increasing 
because two payments are due in March 2019. The company has US$250 million of 
offshore bonds due on March 1. Put options on another US$300 million in bonds 
are exercisable on March 20.

Guorui's readily available liquidity sources in the form of offshore 
unrestricted cash are limited, although the company is in the process of 
transmitting cash offshore. In addition to offshore issuances, the company is 
targeting to fill the liquidity gaps in the next two months through 
transmitting onshore funds, cash collections from sales, onshore loans, and 
debt issuances. Even if Guorui can arrange for sufficient channels to remit 
funds offshore, we see risks that the refinancing could be delayed, given the 
large notional amounts.

We expect to resolve the CreditWatch placement following Guorui's repayment of 
offshore maturities, likely before the end of March 2019, including if we 
believe the company has secured sufficient offshore funds for refinancing.

We could lower the rating by one or more notches if we do not believe the 
company will complete its refinancing plans prior to its bond maturity on 
March 1, 2019.

We could raise the rating if the company executes its refinancing plans and 
enhances its capital structure and liquidity.
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