A deep dive masterclass on sovereign debt restructuring, to be conducted virtually by Asian high yield bond expert Florian Schmidt.

30 June 2022 (Thu), 5pm Singapore/HK time

Adding the the list of negative rating actions among Chinese property developers, China Aoyuan and RiseSun were downgraded by S&P and Moody’s respectively.

China Aoyuan was downgraded to B from B+ due to ‘elevated leverage’ and tight liquidity amid weak cash generation. S&P expects Aoyuan’s revenue growth to weaken drastically to 2-4% in 2021 and 2022, from 34% and 63% in 2020 and 2019 respectively. Slowing sales, margin reduction, weak cash collection and its minority interest at 65.5% of total equity are expected to limit debt reduction. S&P adds that despite a “large total cash balance of RMB 68.3bn ($10.6bn) as of end-June 2021, we are uncertain about the extent to which the company can access these funds for debt repayment as some cash might need to stay at project companies”. Aoyuan has ~$1.14bn in dollar bond maturities next year and S&P sees uncertainty in refinancing these offshore maturities with new issuances.

Despite the downgrade, Aoyuan’s dollar bonds are higher this morning with its 7.35% 2023s up 3.9 points to 68.44. The bonds had fallen ~25% through the previous week.

RiseSun was downgraded to B1 from Ba3 due to “weakening liquidity and increased refinancing risk over the next 6-12 months amid tight funding conditions and large debt maturity”. Its senior unsecured notes were also downgraded to B2 from B1 due to structural subordination. The company has high exposure to low-tier cities where housing demand is less certain because of weaker economic conditions due to which contracted sales are expected to decline. RiseSun’s key credit metrics will weaken over the next 12-18 months and Moody’s expects leverage (revenue/debt) to be around 100% in 2021-22. While Moody’s expects its liquidity i.e., unrestricted cash of RMB 26.3bn ($4.1bn) to be ample to repay maturing debt, this can reduce the funding available for its operations over the next 12-18 months and hurt financial flexibility.

RiseSun’s dollar bonds are flat today with its 8.95% 2022s at 57.8.

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