China Evergrande Group suffered fresh credit downgrades this week from a pair of key credit agencies, and the world’s most indebted developer also caught flack from a paint supplier for failure to repay more than RMB 100 million ($16 million) in debt.
Moody’s Investors Service announced Tuesday that it was cutting the corporate family ratings of Evergrande and its principal domestic unit, Hengda Real Estate Group Co Ltd, by three notches to Ca from Caa1, with a negative outlook.
The agency also lowered Evergrande’s senior unsecured ratings to a lowest-possible C from Caa2, due to the fact that most claims are at operating subsidiaries and have priority over claims at the holding company in a bankruptcy scenario, Moody’s said in a rating action report.
“The downgrades reflect Evergrande’s heightened liquidity and default risks given its sizable amount of maturing debt over the next 6-12 months,” said Cedric Lai, a Moody’s vice president and senior analyst. “The downgrades also reflect the weak recovery prospects of Evergrande’s creditors, if there is a default.”
Fitch Foresees Default
Moody’s also marked down to C from Caa2 the corporate family rating of Tianji Holding Ltd, which serves as Hengda’s overseas financing platform, and likewise cut the backed senior unsecured ratings for another offshore financing vehicle, Scenery Journey Ltd, to C from Caa2.
Moody’s second set of downgrades for the Shenzhen-based group led by billionaire Xu Jiayin in little over a month came as Fitch Ratings issued its own demotions on Tuesday.
Fitch cut the long-term foreign-currency issuer default ratings for Evergrande, Hengda Real Estate and Tianji to CC from CCC+, as well as the senior unsecured ratings of Evergrande and Tianji to C from CCC and the Tianji-guaranteed senior unsecured notes issued by Scenery Journey to C from CCC.
“The downgrade reflects our view that a default of some kind appears probable,” Fitch said in a report. “We believe credit risk is high given tight liquidity, declining contracted sales, pressure to address delayed payments to suppliers and contractors, and limited progress on asset disposals.”
Evergrande’s bonds plunged earlier this week after a downgrade by a mainland rating agency led to restrictions on the securities’ use as collateral.
Paint Maker Paid in Condos
Also on Tuesday, Shanghai-listed Skshu Paint Co Ltd said Evergrande had failed to fully repay RMB 336 million in short-term debt owed to the Shanghai-listed maker of 3Trees brand coatings.
Evergrande has paid back RMB 235 million to the paint supplier — albeit with RMB 220 million of that in real estate and a mere RMB 15 million in cash — leaving the developer about RMB 101 million in arrears, Skshu Paint said in a filing with the Shanghai Exchange.
Reuters reported Wednesday that Evergrande plans to suspend interest payments due on loans to two banks on 21 September. The news agency cited sources who spoke with financial intelligence provider REDD.
Also Wednesday, Bloomberg said Evergrande’s heavy discounts on its current projects failed to boost property sales in August after the group signed contracts worth RMB 38.1 billion during the month, with the average selling price plunging 11.5 percent from a month earlier to its lowest point since July 2016.