Sinic Holdings was downgraded to three notches to Caa2 from B2 by Moody’s and is on review for further downgrade. “The downgrade reflects Sinic’s materially weakening liquidity profile given its rapidly deteriorated funding access and maturing offshore debt over the next 6-12 months, leading to a likelihood of default on its payment obligations”, said Daniel Zhou, a Moody’s Analyst. The likely default would include its $246mn 9.5% USD bond due October 18, 2021 that currently trades at distressed levels of 26 cents on the dollar.
While Sinic is a leader in property development in Nanchang, Jiangxi province and in Huizhou, Guangdong province, this is counterbalanced by its “high geographic concentration and moderate credit metrics”. As of end-June 2021, Sinic had RMB 13.4bn ($2.1bn) in short-term debt including its offshore $246mn 9.5% 2021s and, $245mn 8.5% 2022s and $208mn 10.5% 2022s. Additionally, it had RMB 8bn ($1.24bn) in payables and any demand for accelerating repayment of these payables can lead to creditors’ loss of confidence and further stress its liquidity. Sinic has RMB 14bn ($2.2bn) in unrestricted cash but Moody’s is uncertain if Sinic could use it for debt repayment. They note that Sinic has meaningful exposures to joint ventures (JVs), which could limit its ability to control cash flow. Moody’s expects Sinic’s contracted sales and operating cash flows to deteriorate significantly over the next 6-12 months.
Sinic’s dollar bonds are at distressed levels – its 8.5% 2022s and 10.5% 2022s trade at 22.6 and 26.4 respectively.
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