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Moody's cuts Chinese property giant Longfor's ratings to cusp of junk

China's property market has suffered a wave of defaults and debt restructurings since mid-2021 which have also left swathes of homes unfinished

China, buildings, economy

Photo: Bloomberg

Reuters

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Moody's downgraded China's second-largest private property firm Longfor's credit ratings to Baa3, the lowest rung of investment grade, on Friday and put it "on review" for a further downgrade.

"The rating downgrade reflects our expectation that Longfor's credit metrics and liquidity buffer will decline amid slowing contracted sales, continual margin pressure and still constrained funding access to the debt capital markets," said Kaven Tsang, a Moody's senior vice president.
 
"The review for (another) downgrade reflects high uncertainties over the company's ability to improve its operating performance and recover its access to funding amid uncertain market prospects and volatile funding conditions".
 
China's property market has suffered a wave of defaults and debt restructurings since mid-2021 which have also left swathes of homes unfinished, undermining the confidence of both homebuyers and investors.
 
Beijing-based Longfor was one of the large privately-owned developers involved in a meeting with top Chinese regulators early this month and said recently that it felt it had the support from policymakers to meet its "reasonable financing needs".
 
Last week it reported a 35% slump in revenue from a year earlier a big decline in cash coverage on short-term debt to 1.27 times. At the same time it said it would strive to boost its profitability as it posted a 0.6% rise in first-half core profit.
 
Moody's expects Longfor's full-year contracted sales to decline by around 10% to approximately 180 billion yuan ($24.7 bln) in 2023 from 202 bln yuan ($27.7 bln) in 2022 because of "weaker market sentiment and homebuyers' increased risk aversion."
The rating agency said it could downgrade the firm's ratings if it is "unable to recover its access to funding and strengthen its contracted sales".
 
They would also come "under pressure" if the firm pursued "aggressive financial management, resulting in a deterioration in its financial metrics and liquidity." Moody's estimates that the firm will have around 12 billion yuan ($1.65 billion) of Chinese domestic 'onshore' market bonds "maturing or becoming puttable" between now and the end of 2024.

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First Published: Aug 25 2023 | 6:28 PM IST

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