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Country Garden’s (COGARD) dollar bonds continued to drop further following its downgrade by Moody’s to B1 from Ba3. The main reasons cited for the downgrade were the weakening contracted sales, continued constraints on funding access and a significant amount of debt maturing over the next 12-18 months. Contracted sales for 1H 2023 has fallen 30% to RMB 128.8bn ($18bn), an underperformance in contrast to a 3.7% increase nationally. Yesterday, it reported contracted sales for July stood at RMB 12.07bn ($1.7bn), lower than June’s RMB 16bn ($2.2bn), indicating a further decline. In fact, its contracted sales are expected to fall from RMB 357bn ($35.9) in 2022 to about RMB 210bn ($29.4bn) and RMB 180bn ($15.2bn) in 2023 and 2024 due to high exposure to low-tier cities. Furthermore, its funding access to both onshore and offshore capital markets are expected to remain constrained against a backdrop of a turbulent debt capital market for property developers, particularly for privately-owned ones. This means that the company will utilize its internal resources to repay its maturing debt over the next 12-18 months. Finally, its refinancing needs are expected to grow with roughly RMB 17bn ($2.4bn) of onshore bonds and RMB 14bn ($2bn) of offshore bonds due or becoming puttable through end-2024. With dropping sales, this is expected to deplete its liquidity buffers.
Its dollar bonds are currently trading at distressed levels, with most trading ~15 cents on the dollar. Its 8% 2024s have almost halved in value since the start of the week, trading at 25 cents on the dollar currently.