CIFI was downgraded to BB- from BB with a negative outlook by S&P due to its increasing leverage. The rating agency sees a weakening sales outlook with muted property demand.  It expects contracted sales to decline by 35-40% YoY to RMB 150-160bn ($21.5-23bn) in 2022. Its YTD sales are down ~47% already. Leverage measured by debt-to-EBITDA is also expected to rise to 6x in 2022-23 from 5.5x in 2021 due to lower revenue, despite a moderate fall in debt levels as CIFI cut its land spending. Inventory impairment provision has put pressure on margins which can send leverage higher. CIFI may need to repay debt with internal resources as offshore funding has tightened. Offshore funding was 40% of its total debt as of June 2022. In H1, CIFI’s cash holdings fell to RMB 20.1bn ($2.9bn) from RMB 29.6bn ($4.2bn). During the same period the developer spent RMB 4.5bn ($650mn) for debt repayments at its JV projects, and RMB 3bn ($430mn) for the purchase of its partners’ minority interest stakes. The company’s recent share sale and offloading of its Fortress Hill project in Hong Kong would generate about HKD 1.3bn ($170mn) of cash inflows, moderately boosting its offshore liquidity. Earlier in July, CIFI was downgraded from Ba2 to Ba3 by Moody’s.

CIFI’s 4.45% 2026s are trading at 46.33 cents to the dollar, down by 0.68 points.

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