Sichuan Languang Development's Proposed Guaranteed U.S. Dollar Senior Unsecured Notes Rated 'B'

HONG KONG (S&P Global Ratings) April 17, 2019--S&P Global Ratings today assigned its 'B' long-term issue rating to a proposed issuance of U.S.-dollar-denominated senior unsecured notes by Hejun Shunze Investment Co. Ltd., an indirectly owned subsidiary of Sichuan Languang Development Co. Ltd. (Languang: B+/Stable/--). Languang unconditionally and irrevocably guarantees the notes. The company plans to use the proceeds for general corporate purposes.
We rate Languang's senior unsecured notes one notch below the issuer credit rating because of significant subordination risks from secured debt. In our calculation, the proposed notes will rank behind a sizable amount of priority debt in Languang's capital structure. As of the end of 2018, Languang's reported debt consists of Chinese renminbi (RMB) 23.6 billion unsecured debt and RMB33.4 billion secured debt issued by the company and its subsidiaries, which is over our threshold of 50%. The issue rating is subject to our review of the final issuance documentation.
We do not expect the new issuance to have a significant impact on Languang's credit profile. The stable outlook reflects our view that Languang will improve its cash collection, and maintain stable margins and leverage ratios in the next 12 months. We also expect the company to grow its scale moderately and expand its geographical diversity.
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