S&P puts Sunac China on credit watch with negative implications

Business | 11 Jul 2017 6:00 pm

Sunac China Holdings B+ long-term corporate credit rating and cnBB- long-term Greater China regional scale rating have been placed on credit watch with negative implications, S&P Global Ratings said today.

This reflects reflects the agency's view that Sunac's financial leverage could further worsen following the large land acquisitions and expansion in the non-core segments, S&P Global Ratings said.

Sunac announced on Monday that it had agreed to buy 13 cultural and tourism projects and 76 hotels for a total of 63.2 billion yuan from Dalian Wanda Commercial Properties.

Sunac has extended its aggressive expansion appetite from 2016.

S&P said it estimated that the company has spent 120 billion yuan (including the latest acquisition from Wanda Commercial) so far this year on buying land through public auction and mergers and acquisitions, and investing in non-core businesses, including Leshi companies, and Homelink.

The expenditure exceeded the total contracted sales, including sales from joint ventures, of 108.9 billion yuan in the first six months.

Given the heavy spending on land acquisitions and expansion, and growing expenditure for construction, S&P forecast the cash flow from operations will remain negative and the company will rely on further debt to support its expansion. That will increase Sunac's leverage.

In addition, the recent asset acquisition from Wanda Commercial and substantial investment in Leshi also reflect Sunac's aggressive financial stance, given that these heavy investments and expenditures will further pressure the developer's already high financial leverage and increase the burden on future cash flow.

S&P said it assessed the financial discipline of Sunac as negative.

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