S&P: Xinyuan Real Estate Co. Ltd.'s Proposed Notes Assigned 'B-' And 'cnB' Ratings
The issue rating is one notch below the long-term corporate credit rating on Xinyuan to reflect structural subordination risk. Xinyuan intends to use the proceeds to redeem its offshore senior notes due 2018 and refinance some of its existing borrowings.
Xinyuan's first-half performance is largely in line with our expectation. The company's contracted sales were about Chinese renminbi (RMB) 5 billion, representing 45% of our full-year projection of RMB11 billion. At the same time, Xinyuan controlled its spending on land acquisitions at RMB2 billion in the first seven months, compared with our full-year forecast of RMB3 billion. We anticipate that the company will continue to replenish its land bank given that its reserves are only sufficient for development in the next two to three years, based on our estimation.
We expect Xinyuan's leverage to remain high, despite a marginal improvement during the first half of 2016 as a result of steady sales growth and controlled debt. We estimate the company's ratio of debt to EBITDA to stay at 9x-11x in 2016 and slightly improve to 7x-9x in 2017, compared with about 10x in 2015.
The negative outlook on the corporate credit rating reflects our view that Xinyuan's financial leverage will remain high in the coming 12 months despite moderately improving. Downside risks could rise if the company's land acquisitions are more aggressive than we expect, resulting in a further deterioration in leverage from its end-2015 level. However, the situation could improve if Xinyuan better controls its borrowings and pace of expenditure for expansion.