China State Construction International Holdings Ltd.

The negative outlook reflects low visibility over CSCI's deleveraging prospects in the next 12 months. We expect the company to continue to sign contracts for new investment projects in China that require material capital commitments. CSCI's cash flows may fall short of our expectation if the company faces challenges when rolling out its deleveraging plan. We could lower the rating on CSCI if the company's ratio of funds from operations (FFO) to debt remains below 20% with limited likelihood of improving materially. The ratio could remain high if: (1) CSCI fails to reduce its reliance on debt to finance investment projects through divestments or other means; or (2) competition in China continues to squeeze project profitability, weakening the company's cash

...An established position in core markets and rising presence in mainland China Mainland support new contracts wins and steady revenue growth. China State Construction International Holdings Ltd. (CSCI) benefits from good brand recognition and bargaining power with local governments for infrastructure-construction projects. That's because of the company's good execution in complex engineering and construction (E&C) services and name association with the parent group, which is a large central state-owned enterprise (SOE). We expect CSCI to continue to acquire new contracts and generate predictable future revenues. Investment-linked projects, which require large capital commitment, have grown rapidly and resulted in material working capital outflow and equity investments. In recent years, CSCI has expanded its businesses mainly in the form of public-private partnerships (PPP) in mainland China, where it provides E&C services with upfront funding for project owners. Such projects tend to have...

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