China SCE Group's Proposed U.S. Dollar Senior Unsecured Notes Assigned 'B' Rating

HONG KONG (S&P Global Ratings) April 1, 2019--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 SCE Group Holdings Ltd. 
(CSCE: B+/Stable/--). The China-based developer intends to use the net 
proceeds mainly to refinance certain existing offshore indebtedness. The 
rating is subject to our review of the final issuance documentation.

We rate the proposed senior unsecured notes one notch below the issuer credit 
rating on CSCE, reflecting significant structural subordination risk. At the 
end of December 2018, CSCE's capital structure consisted of Chinese renminbi 
(RMB) 20.6 billion of secured debt as well as RMB15.8 billion of unsecured 
debt (including guarantee to joint-controlled entities). As such, secured debt 
makes up about 57% of CSCE's total debt, which is above the 50% notching-down 
threshold for priority debt. 

We do not expect the new issuance to have a material impact on CSCE's credit 
profile because the company intends to use the proceeds primarily for 
refinancing, which may include its US$350 million offshore notes callable in 
April. 

We forecast CSCE's leverage to stabilize at about 6x in 2019, supported by 
steady sales growth and high margins. In 2018, the company's contracted sales 
grew 54.5%, despite a weaker market sentiment toward the end of the year. 
Nevertheless, we believe CSCE will continue to pursue sizable land 
acquisitions in 2019 to replenish its land bank during its expansion.

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