China property: Moody’s downgrades Longfor’s credit rating to below investment grade
- The credit ratings agency downgraded Longfor from ‘Baa3’ to ‘Ba2’ as it expects the developer’s condition to deteriorate across the board
- An upgrade of Longfor’s rating is unlikely because of the negative outlook, Moody’s says
Moody’s has stripped mainland Chinese developer Longfor Group Holdings of its investment-grade credit ratings, citing a negative sales outlook because of sluggish home sales and funding conditions.
The credit ratings agency downgraded Longfor, one of the top 10 mainland Chinese developers by sales, from “Baa3” to “Ba2”.
“The rating downgrades are driven by our expectation that Longfor’s contracted sales, credit metrics, financial flexibility and liquidity buffer will decline over the next 12-18 months amid a volatile market and funding conditions,” Kaven Tsang, a Moody’s senior vice-president, said late on Wednesday in a statement.
“The negative outlook reflects the high uncertainties over the company’s ability to recover its contracted sales, credit metrics and access to debt capital markets over the next six-12 months,” added Tsang, who is also Moody’s lead analyst for Longfor.
Given the negative outlook, an upgrade of Longfor’s rating is unlikely, Moody’s said.
The credit rating cut comes as official data showed home prices in China fell at a faster pace in October amid an economic downturn, despite stimulus measures launched by Beijing in late August, from cutting mortgage rates to lowering thresholds for first-time buyers.
Home sales at the country’s top 100 developers slumped by 27.5 per cent year on year in October to 406.7 billion yuan (US$56 billion), according to data compiled by the China Real Estate Index System.
Moody’s estimates that Longfor’s gross contracted sales will fall to around 180 billion yuan this year and to around 165 billion yuan in 2024, from 202 billion yuan in 2022, because of weak housing demand amid China’s slow economic recovery.
Beijing-based Longfor’s gross contracted sales fell by 8.5 per cent to 152 billion yuan in the first 10 months of the year 2023, the company’s filings showed.
China’s new home prices fall by the most since early 2015 as demand slumps
It was one of the few large privately owned developers considered by Beijing as an example of a “good developer”, and was picked by the government to issue onshore bonds last year amid an ongoing housing crisis.
Longfor had a total land bank of 54.89 million square metres in terms of gross floor area across 61 cities in China as of end-June. It reported a core profit of 6.59 billion yuan for the first half of the year.
Longfor’s shares fell 1.5 per cent to HK$12.84 on Thursday, taking the year to date slump nearly 47 per cent. The bid price for a senior note maturing in April 2027 rose to 50.478 cents on Tuesday, compared with 50.069 cents a day earlier.
Founded in 1993, Longfor is a leading developer of residential and commercial property. The company began its business in southwestern China’s Chongqing municipality, building a solid reputation in the region.
