China Evergrande and its subsidiaries Hengda, Tianji and Scenery Journey were downgraded three notches by Moody’s. Evergrande and Hengda were downgraded to Ca from Caa1 while Tianji and Scenery Journey to C from Caa2. The rating outlook remains negative. “The downgrades reflect Evergrande’s heightened liquidity and default risks given its sizable amount of maturing debt over the next 6-12 months…The downgrades also reflect the weak recovery prospects of Evergrande’s creditors, if there is a default”, said Cedric Lai, a Moody’s VP.

Evergrande’s unrestricted cash on hand of RMB 86.8bn ($13.4bn) as of end-June 2021 would be insufficient to cover its short-term and long-term debt over the next 12 months. Also, it will unlikely be able to raise sufficient new funds for refinancing given its deteriorated access to onshore and offshore funding markets. Moody’s also highlights high uncertainty on fundraising via asset sales or investments from potential investors for servicing debt.

Evergrande’s senior unsecured ratings are one notch below its CFR at C, due to structural subordination risks where most of the claims are at the operating subsidiaries and have priority over claims at the holding company in case of bankruptcy. Hengda was downgraded due to its close linkage with Evergrande. Moody’s added, that an upgrade was unlikely given the negative outlook, but, positive rating momentum could develop if Evergrande repays its maturing debt and materially improves its liquidity.

Evergrande’s dollar bonds continue to stay at its distressed levels since morning with its 13% 2022s issued by Scenery Journey are down 3.8 to 22.23 and its 11.5% 2022s issued by Hengda are down 3.7 to 22.35.

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