Chinese property developer Country Garden (COGARD) is downgraded to BB from BB+ by S&P due to reducing liquidity buffer amid declining sales and high construction expenditures. S&P forecasted that COGARD’s construction expenditure will account for 60% of contracted sales which have already declined 30% YoY for January-August 2022. Contracted sales are not expected to recover in the rest of the year. S&P has estimated COGARD’s leverage (consolidated debt-to-EBITDA) to increase to 5.2x in 2022 and 2023 from 3.7x in 2021 and also expects margin pressures to continue from 1H 2022 on impairment provisions on inventory. Unrestricted cash declined from RMB 97bn ($13.8bn) to RMB 77bn ($11bn) as of June 2022 mainly due to debt repayments. Its cash is sufficient cover further short-term debt maturities of RMB 73bn ($10.4) of which RMB 45bn ($6.4bn) is contributed by bank loans. The developer has heavily relied on onshore bank borrowings, accounting for 48% of total debt and S&P expects that any weakening in banking relationships will weigh on liquidity.

Country Garden’s 4.8% 2030s were trading 0.13 points lower at 39.60, yielding 20.63%.

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