Times China was downgraded to B1 from Ba3 by Moody’s and its senior unsecured ratings to B2 from B1 on the back of reduced liquidity buffer due to “weakened funding access and continued cash spending on urban redevelopment projects (URPs)”. Its cash balances are estimated to have declined notably as of the end-2021 due to continued spending on URPs and falling sales with its unrestricted cash to short-term debt coverage ratio below 1.5x at the end-2021 from 2x at the end-June 2021. With bond markets accounting for 59% of its funding in 2021, weakened funding access will not allow the company to tap th market. While its overall liquidity is adequate, using cash and operating cash flows for land payments and maturing debt in the next 12-18 months will constrain operational funding. Contracted sales are also expected to fall and its EBIT/interest coverage, is set to slip to 2.1-2.2x over the next 12-18 months, from 2.5x for the TTM ending June 2021.  The low B2 rating on its notes reflects structural subordination risks.

Times China dollar bonds are among the big losers, down over 2-3 points with its bonds due 2022 to 2024s at just over 44 cents on the dollar and the bonds maturing beyond at ~33 cents on the dollar.

Logan Group was downgraded to BB- from BB by S&P due to undisclosed guaranteed debt that weakens its information disclosure and transparency, reducing liquidity buffer and access to capital markets. Similar to Moody’s downgrade of the company to Ba3 earlier in the week, a significant guarantee of $1bn will weaken its repayment burden. Leverage is expected to stay high and EBITDA margins are expected to have dropped to 24% in 2021, from 30% in 2020. Weakened market funding access, an expected drop in sales and weak market confidence in the company post its transparency mishap will weigh on its financial condition.

Logan’s dollar bonds were also lower by ~ 1 point to trade at over 50 cents on the dollar.

For the rating action on Times China, click here | For the rating action on Logan, click here

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