Chinese property developer Sichuan Languang Development was downgraded by a notch to B3 and B- by Moody’s and S&P respectively. Moody’s also changed the outlook to negative and S&P placed them on CreditWatch Negative. Both rating agencies primarily cited weakening liquidity and funding access as the reasons for the downgrade. Moody’s notes that the company has CNY 16bn ($2.5bn) in onshore and offshore debt and CNY 18bn ($2.8bn) in non-standard borrowings due in the next 12-18 months even as they would try repaying them through internal cash generated by its high cash collection ratio of 90%. They expect contracted sales to drop by 25% this year which would hurt operating cash flows. S&P said that Languang “is unable to access capital market financing channels, given the volatility in prices of its capital market instruments, both domestically and offshore”. With this, Moody’s also downgraded Hejun Shunze’s notes to Caa1 from B3 that are guaranteed by Languang. S&P adds that while Languang is working on contingent plans to repay debt like selling stakes in development projects, its recent disposal of shares in subsidiary Languang Justbon for CNY4.9bn ($770mn) did not restore market confidence or sufficiently boost liquidity. Also, since most of its cash balances are trapped at its subsidiaries or JV companies, they may not be available for debt repayment.
The rating actions come only a day after the company made repayments on a local bond. Languang’s bonds were mixed – its USD 10.4% 2023s were up 1 point to 51.13 and its USD 11% 2022s were down 0.3 to 53.5.