What’s new: Fitch Ratings downgraded Sunac China Holdings Ltd.’s long-term foreign-currency issuer default rating to BB- from BB with a negative outlook, citing the Chinese developer’s decreasing financial flexibility amid deteriorating market confidence.
Fitch said it expects the company to use its cash balances to repay maturing capital-market debt. Sunac has more than 12.3 billion yuan ($1.94 billion) of onshore public capital-market bonds maturing by the end of 2022 as well as $600 million of offshore bonds due in June and another $600 million due in August.
The company needs to repay 928 million yuan of asset-backed securities due Feb. 9 and 3.1 million yuan of onshore bonds. Sunac deposited cash Wednesday for payments to the designated accounts, Caixin learned.
The company’s liquidity improved after equity placements in November and January, but it’s expected to require more cash, which may be raised via asset disposals, Fitch said. Any asset sales will face adverse market conditions, and failure would result in rapid erosion of its liquidity buffers, the credit rating firm said.
Fitch also downgraded Sunac’s senior unsecured rating and the ratings on its outstanding U.S.-dollar senior unsecured notes to BB- from BB.
Debt capital markets are largely closed for now to Sunac and other developers with BB and B ratings, Fitch said. The company will have to settle certain trade payables, including commercial bills, construction expenses and land acquisition expenses, before the Lunar New Year at the start of February.
The background: Financing has become increasingly difficult for developers as a result of the government’s “three red lines” policy imposed in September 2020. It sets limits on financial institutions’ liabilities-to-assets ratio, net gearing ratio and cash-to-short-term debt ratio.
Already fragile investor confidence has taken a battering this year, effectively keeping the dollar bond market closed for developers. That’s left the sector with limited refinancing options, increasing the risk of companies failing to pay debt on time.
At least seven developers have defaulted on dollar bonds since October. Guangzhou R&F Properties Co. Ltd. was downgraded to restricted default by Fitch Ratings last week due to what the ratings firm called a distressed debt exchange.
Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)
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