KWG Group was downgraded to B+ from BB- by Fitch with a negative outlook on the back of “decreasing financial flexibility amid high capital-market volatility”. KWG has onshore and offshore capital market debt totaling RMB 16bn ($2.5bn) through September 2022. The company said it provided guarantees to private bonds issued by JVs and other entities, including $300mn due December 2021 and $220mn due April 2022. Fitch expects KWG to use its cash balance and internal cash to repay these debts. KWG was reported to have unrestricted cash of RMB 30.5bn ($4.8bn) in end-September 2021 – RMB 15bn ($2.4bn) at the holding-company level and $300mn at its offshore account. Fitch sees uncertainty on KWG’s deleveraging trajectory, expecting it to rise temporarily from 49% currently and stay above the negative threshold of 50% in the near term. Also KWG had undisclosed contingent liabilities of $200mn which was not reported in its financial statements. Fitch expects lower cash collection with slowing contracted sales after falling 29% YoY in 3Q2021 and 25% in October.
KWG’s dollar bonds were stable with its 6% 2026s at 71.56 cents on the dollar
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