Corporate Debt Restructuring Masterclass

18 July 2022 (Mon), 5pm Singapore/HK time

Country Garden (COGARD) and its senior unsecured notes were downgraded to Ba1 from Baa3 by Moody’s. The issuer’s Baa3 ratings were withdrawn post the downgrade. The downgrade is on the back of “declining property sales and deteriorating financial metrics” and “weakened access to long-term funding”. Moody’s expects COGARD’s contracted sales to fall by around 30% to about RMB 400bn ($59.6bn) in 2022 due to the weakness in the property market. Its sales have already fallen 40% YoY through May this year. The rating agency also highlighted that its high exposure to low-tier cities could expose it to sales volatility and margin pressure, due to weak fundamentals in these cities. Gross margins are set to fall to 15-16% over the next 12-18 months from 18% in 2021. Also, its interest coverage ratio is set to decrease to 4-4.3x over the next 12-18 months from 4.7x in 2021. While COGARD’s unrestricted cash of RMB 147bn ($21.9bn) as of December 2021 will be sufficient to cover its maturing debt of $1.3bn through 2023, it may have to be kept at the project level to support its operations. This could limit its financial flexibility. On May 30, 2022, Moody’s had kept COGARD under review for downgrade. COGARD is now rated as a high yield issuer by both Moody’s and S&P at Ba1 and BB+, while Fitch is the only rating company to hold an investment grade status on the developer at BBB-. 

Separately, Country Garden will buy back 60.13% or $410.9mn of its $683.4mn 4.75% dollar bond due in July 2022 after they announced the offer last week. The buyback is said to be financed with internal cash holdings. The note is trading at par.

Show Buttons
Hide Buttons