Seazen Group has been downgraded by Moody’s from Ba2 to Ba3, revising their outlook to negative as well. The downgrade is on account of the real estate company’s contracting property sales, which in turn will reduce its operating cashflows to repay their obligations. Moody’s expects the Chinese developers’ full year contracted sales to decline ~30% to RMB 165bn ($24.4bn) from RMB 234bn ($34.6bn) in 2021, Its contracted sales have already plunged 45% YTD as a result of bleak market sentiment and pandemic-driven restrictions. Additionally, the rating agency expects Seazen’s gross margins to fall to 15-16% and its EBIT/Interest coverage to drop below 3x over the next 12-18 months. Moody’s expects Seazen to be able to adequately repay its maturing debt with its unrestricted cash of RMB 46.6bn ($6.9bn) and projected cash flow. However, the use of internal resources to repay debt could dwindle its liquidity buffer in the long run. The negative outlook is a reflection of the challenging fundraising conditions in the Chinese economy, with Moody’s doubtful of Seazen’s ability to secure new long-term funding to bolster its liquidity buffer.
Seazen’s 5% dollar bonds maturing next month are currently trading at 97.7, up by 0.13 points.