SOVEREIGN DEBT RESTRUCTURING | MASTERCLASS

A deep dive masterclass on sovereign debt restructuring, to be conducted virtually by Asian high yield bond expert Florian Schmidt.

30 June 2022 (Thu), 5pm Singapore/HK time

Moody’s downgraded Ronshine China to B2 from B1 citing that their “profitability and key credit metrics in the next 12-18 months will stay at weaker levels than that of its B1-rated Chinese property peers, given its high land acquisition costs”. They also expect its liquidity buffer to decline due to the current tough operating conditions in Chinese real estate and likely settlement of its unpaid land premium and debt repayments in the next 6-12 months. The outlook was stable given their adequate liquidity of RMB 27.3bn ($4.2bn) in unrestricted cash of as of the end-June 2021, which covered 109% of its short-term debt. Ronshine’s debt leverage (revenue/adjusted debt), will be ~60-65%, versus 65% for the 12 months ending June 2021. Moody’s expects limited flexibility for Ronshine’s to adjust selling prices and its land acquisition costs exceed the cost of its land bank. Due to high land acquisition costs in major cities, Ronshine’s gross margin and EBIT coverage are likely to stay low at 10% and 1.5x respectively over the next 12-18 months.

Regarding its debt, a large amount of debt, i.e., its $1.5bn of dollar bonds and RMB 9.4bn ($1.5bn) of onshore bonds mature or become puttable from September 1, 2021 to December 31, 2022. Its  B3 senior unsecured rating is one notch lower than its CFR to reflect the risk of structural subordination. The rating action follows S&P’s downgrade of Ronshine to B a couple of days ago with a similar analysis.

Ronshine’s dollar bonds slipped further – its 8.1% 2023s were down 4 points to 78.6.

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