Daily Brief Credit: China South City – Tear Sheet – Lucror Analytics and more

We view China South City (CSC) as “High Risk” on the LARA scale given increasing refinancing risk, with significant maturities in the next 12 months. The company’s capital-market access is limited, amid the recent volatile market conditions and heightened yields for the existing bonds. We also note the risks associated with: [1] CSC’s weak financial risk profile; [2] the inherent volatility associated with commercial developments; and [3] potential regulatory changes, including delays in government-led support for infrastructure projects. The company will be increasingly reliant on asset disposals or shareholder support for future payment, especially as property sales have deteriorated.

That said, positives include the: [1] restructuring and introduction of Shenzhen SEZ Construction and Development (SZCDG) as the single largest shareholder following a capital injection in H1/22-23; [2] shift to fast-churn property sales; [3] recurring income from investment properties; [4] above-average, albeit declining, operating margins, thanks to the cheap land bank; and [5] decent geographical diversification in regional centres.

Our fundamental Credit Bias on CSC is “Negative”, given the expected slower recovery in contracted sales for 2023. That said, the company should be able to leverage its relationship with SZCDG for more strategic co-operation and improved access to onshore funding, thanks to its quasi-SOE status. We will look to reinstate a “Stable” Credit Bias on evidence of a turnaround in sales.

Controversies are “Immaterial”. We believe the Chinese property sector has moderate exposure to environmental and social risks. The sector is not energy intensive, but may face social issues related to construction safety and the satisfaction of homebuyers’ requirements. We believe that governance risks are more significant, due to the sector’s generally low transparency and weak internal controls. The ESG Impact on Credit is “Moderately Negative”, mainly owing to CSC’s corporate governance. We highlight that the extensions sought for two bonds due in 2022, and the subsequent extensions for all offshore bonds in July, indicate increasing governance risks.

• NHTSA has recalled all Teslas with FSDBeta, more than 362,000 cars. 
• This comes just before Tesla releases substantial upgrades to Autopilot including the return of radar. 
• Which means NO legacy Teslas really are FSD hardware ready, despite what CEO Elon Musk has claimed for years when selling the option for thousands of dollars

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Alam Sutera Realty
• Hopson Development