China SCE was downgraded to B3 from B2 by Moody’s on the back of its “deteriorating liquidity in view of its sizable debt maturities over the next 12-18 months”. Moody’s expects China SCE’s contracted sales to fall 10% YoY in 2023 after having fallen 44% YoY in 2022 to RMB 59bn ($8.6bn). This will put pressure on SCE’s operating cash flow and liquidity. Moody’s also notes that while China SCE may be able to repay its $500mn 7.25% bond due April 2023, its liquidity will be inadequate over the next 12-18 months sans new external funding to meet its refinancing needs. China SCE is also exposed to JV partnerships where they may need to provide additional funding support especially if their JV partner is in distress. SCE’s weak operations are said to reduce its interest coverage to 1.4x in 2023, lower than the 1.6x seen in 2022 with gross margins falling to 13-14% vs. 17% in 2022.

China SCE’s dollar bonds were trading stable – its 7.25% bond due April 2023 is currently at 84.38.

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