Advertisement
China property
Business

Moody’s says China’s defaulting property firms are making slow progress with debt restructuring, will struggle to stay afloat

  • Property developers that have defaulted since mid-2021 have made little progress in restructuring their debt in the past 12 to 18 months, Moody’s analysts say
  • Bondholders could suffer from more losses while waiting for developers to put together a restructuring plan

Reading Time:2 minutes
Why you can trust SCMP
0
A file photo of an unfinished apartment building site of China Evergrande Group in Beijing from January 2021. Photo: Bloomberg
Elise Makin Beijing
Chinese developers are making slow progress with their debt restructuring and the chances of them getting back on track are slim, Moody’s said in a report on Wednesday.
China Evergrande Group and Cifi Holdings, for instance, are still in talks with offshore creditors about their debt restructuring plans, the rating agency said. Fantasia Holdings Group and Sunac China, meanwhile, have received support from bondholders for 76 per cent and 85 per cent of their offshore debt, respectively, but neither have complete backing.

“Property developers that have defaulted since the sector downturn in mid-2021 have made little progress in restructuring their debt in the past 12 to 18 months,” Moody’s analysts led by Alfred Hui said in the note. They estimate that less than 20 per cent of developers that have defaulted on offshore bonds since 2021 have announced debt restructuring plans.

“We expect the recovery rates of most defaulted developers’ offshore bonds to be low because of a decline in property values and the defaulted developers’ high leverage,” they added.

The analysts also said bondholders could suffer from more losses while waiting for developers to put together a plan, as the asset values of these firms might continue to erode over time.

“The losses, depending on the terms of the plans, can take the form of principal haircuts, payment-in-kind for coupons, maturity extensions or equity swaps,” they said. “All of these erode the economic value of their original investments.”

Advertisement