Sino-Ocean Group was downgraded to BB from BB+ by Fitch and was kept on ‘rating watch negative’ due to the impact on its credit profile from aggressive financial management at associate company Sino-Ocean Capital Holding (SOC), 49% of which is owned by the developer. SOC recently opted for an extension of an RMB 1bn ($140mn) local puttable bond in September and was looking for an extension of a $20mn bank loan. This indicated strained liquidity at SOC. Sino-Ocean provided a keepwell letter to SOC’s $286mn bonds due October, and also provided a letter of support to SOC’s $497mn bonds due June 2023. However, Sino-Ocean has confirmed to Fitch that it has not given any guarantees to SOC and no cross-default provisions exist between the two companies. Fitch added that the ratio of Sino-Ocean’s JV net claims/net property assets was over 35% in 1H 2022, high among its peer group. The company expects future JV-related cash outflows to diminish as these projects enter into the pre-sale phase. Fitch estimates the company has RMB 6bn ($860mn) in local debt due till 1H 2023 and weaker funding access may lead to the use of internal cash to repay debt and reduce liquidity buffer and financial flexibility. Leverage is estimated to remain above 50% for the next two years with its deleveraging plans hit by weaker sales proceeds. This follows Moody’s downgrade of Sino-Ocean earlier this month the developer to Ba2.
Sino-Ocean’s fixed-tenor dollar bonds are trading at 40-45 cents on the dollar.
Another Chinese property developer CIFI Holdings was downgraded to B1 from Ba3 by Moody’s and its senior unsecured notes to B2 from B1 with a negative outlook. Moody’s expects weak operating performance for the next 12-15 months, a 65% decline in contracted sales to RMB 160bn ($22.9bn) in 2022 and a further decrease to RMB 140bn ($20bn) in 2023. In the first eight months of 2022, contracted sales fell 47% YoY to RMB 94.3bn ($13.5bn). To shore up liquidity, CIFI raised funds in September through a share placement of HKD 623mn ($79mn) and a project sale of HKD 1.3bn ($1.7bn) in Hong Kong SAR. The rating agency expects CIFI to maintain sufficient liquidity for the next 12-18 months. Unrestricted cash balances fell to RMB 31.1bn ($4.5bn) as of June 2022 from RMB 46.5bn ($6.7bn) at end-2021 due to weakened sales and repayment of maturing debt. Moody’s expects CIFI’s credit metrics to deteriorate further – its EBIT/interest coverage is set to decline to 2.5-2.6x from 3.6x as of June 2022. In early September, S&P downgraded the developer to BB-.
CIFI’s dollar bonds are trading at 45-55 cents on the dollar.