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Announcement:

Moody's: CSCECL's improved results in 1H 2017 will not lower leverage

Global Credit Research - 01 Sep 2017

Hong Kong, September 01, 2017 -- Moody's Investors Service says that China State Construction Engineering Corp Ltd's (CSCECL) improved results in the first half of 2017 are in line with expectations and support its A2 issuer rating and stable outlook.

However, its level of leverage remains unchanged due to large investments in public-private-partnership (PPP) projects and land purchases.

CSCECL reported that its revenue grew by 12% year-over-year in 1H17 to RMB525 billion. By business segments, its infrastructure construction revenue and property sales rose by 33% and 22% respectively year-over-year,but its low-margin house construction revenue increased only 4%.

"We expect a similar pace of revenue growth in the second half of 2017 due to substantial increases in new construction contracts and contracted property sales. However, such positive momentum is unlikely to lower CSCECL's leverage -- as measured by adjusted debt/EBITDA -- due to its increasing investments in land and PPP projects",says Chenyi Lu, a Moody's Vice President and Senior Credit Officer, and also the International Lead Analyst for CSCECL.

CSCECL's new construction orders increased by 34% year-over-year to RMB1.2 trillion in 1H17, and contracted property sales also grew by 50% year-over-year to RMB122 billion in the same period. However, CSCECL reported negative operating cash flow of RMB 58.7 billion in 1H17, since it funded most of the investment in the property business(RMB76 billion) and PPP projects with cash on hand.

CSCECL's adjusted debt level was stable compared with year-end 2016. Moody's expects limited room for an increase in debt as management is planning to cap debt growth, and adjusted debt/EBITDA will be around 4.7x- 5.0xin 2H17.

CSCECL maintained a strong cash balance of RMB251 billion at end-June 2017, which is about 2.7x of reported short-term debt.

The stable rating outlook reflects Moody's expectation that CSCECL will maintain its market leadership and profitability, and will remain prudent in its operating and financial management, while expanding its infrastructure construction business and overseas business.

The methodologies used in this rating were Construction Industry published in March 2017, and Government-Related Issuers published in August 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

CSCECL is the largest investment & construction company globally by revenue. The company engages in the construction of residential and commercial buildings, civil engineering work, property development and investment,engineering design & survey.

CSCECL listed on the Shanghai Stock Exchange in July 2009. It is 56.26% controlled by China State Construction Engineering Corp, which is in turn 100% owned by the State-owned Assets Supervisionand Administration Commission of the State Council of China (SASAC).

The Local Market analyst for this rating is Peter Jia, +86 (10) 6319-6571.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Chenyi Lu
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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