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Bond Market News
Times China Downgraded to B+; Yuzhou Downgraded to C
January 18, 2022
Times China was downgraded to B+ from B by S&P due to slowing sales and its declining margins. Fitch expects the developer’s contracted sales to decline 3-6% in 2022 and 2023. Sales for Times China typically hits a peak in December but in 2021, it fell 46% YoY. Times China missed its 2021 sales target, with sales declining for the first time in 8 years. Its contracted sales fell 4.5% to RMB 95.6bn ($15.1bn), from RMB 100.4bn ($15.8bn) in 2020. Fitch adds that contribution from Times’ urban redevelopment projects (URPs) will pressure overall margins and its leverage is expected to increase due to stalling revenues and lower margins. It has short-term debt maturities of ~RMB 11bn ($1.7bn) in 2022. Its cash balance dipped 30% to RMB 26.8bn ($4.2bn) in the six months ending June 2021 and Fitch sees 60-70% of it to be accessible and used for debt repayment.
Yuzhou was downgraded to C from CCC- by Fitch following its announcement to launch an exchange offer for its $340mn 6% bond due January 25 and $242.069mn 8.625% bond due January 23. Fitch considers this a distressed debt exchange (DDE), adding that it will be downgraded to RD (Restricted Default) if it is successful. Besides, the offer memorandum states that Yuzhou may not be able to repay the bonds if the exchange is unsuccessful. Fitch believes that a successful exchange offer will help the developer avoid a default due to its tight liquidity with its cash and cash equivalents at RMB 21bn ($3.3bn) by the end June 2021. Fitch believes a majority of Yuzhou’s cash is likely to be at the project level.
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