S&P downgrades Sunac China’s credit rating ahead of looming debt repayment deadlines
- S&P’s downgrade of Sunac’s rating comes a day after a similar move by rival Moody’s, which cited the developer’s heightened liquidity and refinancing risks
- Sunac has asked creditors for a two-year extension on a 4 billion yuan (US$628 million) onshore bond due April 1
The woes of Chinese developers are far from over, with major companies hit by fallout from credit downgrades and their failure to report results on time, forcing many to seek extensions on debt deadlines.
S&P Global Ratings said on Wednesday that it had withdrawn its B- long-term issuer credit rating on Sunac China Holdings, the mainland’s fourth largest developer by sales last year, at the company’s request. The CCC+ long-term issue rating on the senior unsecured notes was also withdrawn.
The ratings withdrawal came after the Beijing-based home builder was downgraded by Moody’s to Caa1 on Tuesday.
“The downgrade reflects Sunac’s heightened liquidity and refinancing risks given the company’s tight funding access amid a challenging operating environment and its large upcoming debt maturities,” said Kelly Chen, an assistant vice-president at Moody’s.
Sunac, founded by chairman Sun Hongbin in 2003, has some US$1.9 billion of offshore bonds, 21 billion yuan (US$3.3 billion) of onshore bonds and sizeable non-bank borrowings due by June 2023, according to Moody’s.
The company has asked creditors for a two-year extension on a 4 billion yuan onshore puttable bond due April 1, which is pending approval, according to two bondholders, who declined to be named.
Sunac said on Monday it would not be able to publish its 2021 financial results by the March 31 deadline, as the auditing work on its finances has yet to be completed, according to a filing to the Hong Kong stock exchange.
China Evergrande Group, Shimao Group Holdings, Ronshine China Holdings and Kaisa Group have also said that they would not be able to meet the financial reporting deadline for 2021, citing disruption to the audit process caused by Covid-19 and drastic changes in China’s real estate landscape.
“The delay in results release is credit negative for these developers, because it raises concerns over the companies’ weak corporate governance, financial management and planning, as well as transparency and information disclosure,” Moody’s said.
Ronshine China was downgraded by Fitch Ratings to CCC on Wednesday following the resignation of PwC as auditor and delay in the publication of the company’s 2021 annual results.
“It reflects increasing uncertainty over Ronshine’s liquidity position and funding access,” the rating agency said.
The cracks in China’s housing market have widened as more developers joined the list of defaults, the latest being Logan Group and Sunac China, despite a softer tone by Beijing on the sector and some relaxed policies on purchase and resale of homes in some cities since late last year.
The Ministry of Finance last Wednesday said that it will not expand the property tax pilot programme this year as the current conditions were not suitable.
More drastic easing measures are expected to stop the property sector from collapsing.
Japanese investment bank Nomura said that Beijing was likely to allow more local governments to ease their local property curbs and interest-rate cuts to support the sector.
“We expect the PBOC [People’s Bank of China] to cut policy rates by a moderate 10 basis points in April and cut the reserve requirement ratio by 50 basis points over the next couple of months,” said Lu Ting, chief economist at Nomura.
