Shimao’s Dollar Bonds Fall after Being Placed on Review for Downgrade by Moody’s

Chinese developer Shimao Group was placed on review for downgrade by Moody’s. Shimao is currently rated Ba1 by Moody’s. Moody’s said that the review reflected their expectation that Shimao’s contracted sales will fall over the next 6-12 months after it fell 32% YoY in October 2021 following a 24% decline in 3Q 2021. It also reflects Shimao’s uncertainty over its ability to get new funding at reasonable cost to address its sizable maturities. However, Moody’s expects Shimao will have sufficient internal cash of RMB74.8bn ($11.7bn) to repay its  short-term debt of RMB44.4bn (~$7bn), but this will in-turn reduce its liquidity buffer and funding available for operations. Moody’s expects its interest coverage (EBIT/Interest) to decline to 3.5-4x over the next 12-18 months with a decline in profit margins vs 4x for the twelve months ending June 2021. Leverage, measured by revenue/debt, is expected to remain stable at ~85% but both the above metrics are weak for its Ba1 rating, they note. Shimao is rated at BB+ and BBB- by S&P and Fitch currently.

Shimao’s dollar bonds fell over 4% yesterday with its 5.6% 2026s falling 5% to 78 cents on the dollar, yielding 11.9%.

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