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Bond Market News

COGARD Downgraded to BB+; Central China Cut to CCC+

Country Garden (COGARD) lost its investment grade status with a one-notch downgrade to BB+ from BBB- by Fitch. The rating agency said that weakening financial flexibility due to the sector’s woes called for a downgrade. While COGARD’s liquidity buffer is adequate, it is under pressure due to declining sales and working capital commitments putting pressure on cash generation. Besides, a deterioration in capital market conditions has narrowed its funding sources. Fitch added that the sales momentum for the developer continues to be uncertain, with YTD attributable sales until July down 40% YoY to RMB 215bn ($31.8bn). On the positive side, Fitch is confident that the developer will repay its offshore debt maturities due over the next one year and that COGARD is better positioned vs. peers for a market recovery thanks to its land bank. Up until the latest downgrade, Fitch was the only major rating agency to have kept COGARD at IG-status while Moody’s and S&P had cut the developer to Ba1 and BB+. 

Central China Real Estate (CCRE) was downgraded to CCC+ from B- by S&P. The rating agency said that CCRE’s “ability to meet financial commitments appears to be unsustainable”. The developer has $900mn in notes due by 2023. However, due to the $500mn repayment on its dollar bond in August weakening its cash buffer, an expected 35-40% decline in contracted sales in 2022 and a diminishing possibility of refinancing, CCRE’s ability to address its bond maturities is strained. The risk is tempered by the good progress of asset sales and management’s solid track record and strong commitment to repay debt.

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