KWG Group was downgraded to B2 from B1 by Moody’s on the back of weakening contracted sales and heightened refinancing risks ahead of sizeable debt maturities. Contracted sales are expected to fall 10-15% over the next two years. KWG has around $900mn of offshore bonds maturing by end-2022, and is unlikely to issue new bonds at reasonable costs to refinance these bonds, given its weakened funding access. KWG’s liquidity was revised to weak from adequate by Moody’s. While it had unrestricted cash of RMB 42.6bn ($6.7bn) in June 2021, Moody’s notes that it will not be able to fully mobilize the cash as it has to keep a considerable amount of cash at the project level. KWG also has high JV exposure, which lowers its transparency and increases uncertainty over its ability to control project cash flows. Revenue/adjusted debt and EBIT/interest coverage are said to remain weak at 25-30% and 2.3x respectively, in the next 12-18 months, vs. 27% and 2.3x for the year ended June 2021.
KWG’s dollar bonds were down over 4 points with its 7.4% 2024s down 4.7 points to 31.8 cents on the dollar.
Shimao Group was downgraded to CCC from B- by Fitch, reflecting its narrowing margin of safety for refinancing capital market maturities. Shimao is dependent on large asset disposals and the successful refinancing or extension of bank and trust loans to repay its debt. Despite some progress in its asset sales by raising RMB 10bn ($1.6bn) in cash, the amount is insufficient to address RMB 22bn ($3.5bn) of capital market maturities in 2022. Its contracted sales fell 60% YoY in January, steeper than most peers and the developer has high JV exposure, weakening its cash collection ability. Fitch also notes that deteriorating market confidence weighs on the developer.
Shimao’s 6.125% 2024s were down 1.3 points to 23.92.