Chinese real estate services company, E-House (China) Enterprise Holdings Ltd has been downgraded to B from B+ by S&P over tough operating conditions and tightening liquidity. S&P concurrently cut its long-term rating on its dollar bonds to B from B+. The rating agency has a negative outlook on E-House as it believes that E-House’s high cash balance will likely be depleted by offshore debt payments and working capital needs. S&P expects leverage to be at 4.5-5.0x in 2021 and 2022 from earlier expectations of 3.5-4.0x on the back of slower revenue growth. Further, it expects account receivable days and potential receivable write-offs to increase given the current tight liquidity faced by most developers.
Excluding Leju Holdings’ cash of RMB 2.1bn ($326mn), which E-House consolidates but is not accessible for debt repayment at the E-House holding company level, S&P assesses the company’s liquidity to be less than adequate at below 1.2x. The downgrade reflects the reduced financial flexibility after E-House’s second largest shareholder Alibaba Group Holdings called-off an HKD 2.5bn ($321mn) equity funding. S&P may downgrade the company further if liquidity worsens post the $300mn repayment of its 7.625% dollar bonds due April 2022 that are currently trading at 77 cents on the dollar yielding 69.6%.
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