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Bond Market News
Kaisa Downgraded to CCC- by Fitch; Shimao Downgraded to BB+ by S&P
November 10, 2021
Kaisa Group was downgraded to CCC- from CCC+ by Fitch given that its liquidity has further deteriorated. “Kaisa’s credit risk is high due to tight liquidity, undisclosed debt from wealth-management products, potential pressure to address non-capital market debt, declining contracted sales and limited progress on asset disposals”, Fitch said. Kaisa missed payments on its WMPs of ~RMB 12bn ($1.9bn) amounting to 10% of its interest-bearing debt. Kaisa has a large amount of debt due between now and end-2022, including $400mn in December 2021, $550mn in April 2022, $1.1bn in June 2022 and $1.7bn in 2H2022. Over 60% of its RMB 48bn ($8.5bn) cash is tied up in project companies and may not be remitted to the holding company on time. Kaisa reporting of results did not record the WMP as liabilities or external guarantees in its financial statements – hence its transparency scores were lower, hurting credit ratings. A 30% YoY reported fall in contracted sales in October 2021, after a 21% fall in 3Q2021 only adds to its problems. Progress has also slowed on its asset disposals, adding the the negatives.
Kaisa’s dollar bonds due 2023 to 2026 are now trading less than 30 cents on the dollar while its 2022s trade just above 30. Its 10.875% Perp is at 23.04.
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Shimao was downgraded to BB+ from BBB- by S&P with a negative outlook. Its the long-term senior unsecured notes were also downgraded to BB from BB+. The tough business conditions in the sector will hurt Shimao’s ability to establish a record of sustaining profitability and leverage, S&P noted. S&P does not expect Shimao’s leverage that currently stands at 3.9x, to sustain below 4x in the next 12-24 months. Shimao’s total contracted sales in October 2021 fell over 32% YoY and in the first 10 months increased a mere 5% YoY, down from 17% during the same period in 2020. Shimao sales target projection of RMB 290bn ($45bn) is lower by 10-15% vs. S&P’s expectations. The rating agency adds that rising land costs and price caps in higher-tier cities have increased margin compression pressure.
Shimao’s dollar bonds are trading between 60-65 cents on the dollar currently while its 4.75% 2022s are at 72 cents on the dollar.
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