Moody’s Investors Service downgraded embattled Chinese developer Country Garden Holdings three notches to Ca, piling on more pressure on the distressed company whose liquidity crisis has shaken the nation’s financial markets.
The rating agency’s outlook on the developer remains negative, as it estimates that the company doesn’t have sufficient internal cash sources to address its upcoming offshore bond maturity, given its weakening sales and sizable maturing debt over the next 12 to 18 months, it said in a statement. Country Garden’s long-term corporate family rating was downgraded by Moody’s to Ca from Caa1.
“The rating downgrades with negative outlook reflect Country Garden’s tight liquidity and heightened default risk, as well as the likely weak recovery prospects for the company’s bondholders,” Moody’s said. The rating agency also pointed to its high debt leverage and the large amount of financing at the operating subsidiary level, it said.
Moody’s also downgraded the developer’s senior unsecured rating to C from Caa2. While Country Garden could service its debt through asset disposals or other fundraising, such activities carry high uncertainties, Moody’s said. Investors who say they collectively hold 10.5% of a yuan bond effectively due Sept. 4 have proposed the note be declared in default because of a recent downgrade, according to a filing to the Shanghai Stock Exchange’s private disclosure platform that was seen by Bloomberg News.
Country Garden reported late Wednesday an unprecedented net loss of 48.9 billion yuan in the first half of the year and warned of possible default. The builder’s distress has deepened after it missed $22.5 million of dollar-bond coupons earlier this month, dragging the broader Chinese junk dollar debt market to its lowest levels this year. It must repay within a separate grace period that ends next week to avoid default.
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