HONG KONG (S&P Global Ratings) April 3, 2019--S&P Global Ratings today assigned its 'B-' long-term issue rating to the U.S.-dollar-denominated senior unsecured notes proposed by Xinyuan Real Estate Co. Ltd. (B/Negative/--). The issue rating is subject to our review of the final issuance documentation. In our opinion, the new issuance is slightly credit positive for Xinyuan, given the mild extension in its debt maturity. The company will use the proceeds to refinance certain existing offshore debt and for general corporate purposes. Xinyuan will purchase its outstanding offshore senior notes due 2019 with the proceeds from this proposed issuance. We also expect the new issuance, together with the company's recent onshore bond issuance, to only moderately improve Xinyuan's liquidity position, given that the company's short-term debt accounted for close to 50% of its total debt at end-2018. That said, we believe further improvement in Xinyuan's liquidity hinges more on the smooth execution of its sales plan and disciplined land acquisitions this year, given its small sales scale and land reserve. Potential further weakening of the company's liquidity is reflected in our negative rating outlook. A ratio of liquidity sources over uses of less than 1.0x would indicate such weakness. We could also lower the rating if Xinyuan's EBITDA interest coverage falls below 1.5x. We rate the proposed notes one notch lower than the issuer credit rating on Xinyuan to reflect subordination risks because the notes will rank behind a material amount of priority debt in the company's capital structure. As of Dec. 31, 2018, Xinyuan's capital structure consists of Chinese renminbi (RMB) 12 billion in secured debt and RMB4 billion in unsecured debt at the subsidiary level, altogether making up about 67% of total reported debt.
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