Chinese property developer Zhenro Properties was downgraded to Ca from Caa2 with a negative outlook by Moody’s. The company has missed interest payments on some of its offshore bonds reflecting a weak liquidity situation and constrained financial flexibility. Moody’s believes that the developer has not settled the missed interest payments within the 30-day grace period, thus amounting to a default. As of June 2022, Zhenro had unrestricted cash balances of RMB 3.1bn ($440mn) , down 79% YoY due to the debt repayment and weak operating cash flow. The rating agency sees Zhenro depending on asset sales or other fundraising avenues for debt servicing, but there are high uncertainties. Its senior unsecured bond ratings were lowered to C from Caa3 on the risk of structural subordination as most of the claims are at the operating subsidiary level and have priority over claims at the holding company level in a bankruptcy scenario.
Zhenro’s dollar bonds are trading at deeply distressed levels of 4-5 cents on the dollar.
