Moody's further downgrades Shimao

Published 24 February 2022, 11:19:17 am

HONG KONG, Feb 24 (IFR) - Moody's on February 23 downgraded Shimao Group Holdings' rating to Caa1 from B2 and changed the outlook to negative from under review, citing heightened liquidity risks.

The latest downgrade was the rating agency's third in less than three months following more negative news about the Chinese property developer.

The previous two downgrades happened on December 17 and January 10.

Shimao has sold various assets since December, raising around Rmb9bn (US$1.4bn) for debt repayment. But Moody's said this is far from enough and estimates that the company will still face a significant liquidity gap.

According to Moody's, at the holding company level, Shimao has large debt maturities becoming due or puttable by the end of 2022, including offshore bank loans, offshore bonds totalling around US$1.7bn, and onshore bonds of around Rmb6.9bn.

As a significant part of cash is held at the project level, Moody's expects the holding company will not have sufficient cash to service its maturing debt, particularly its offshore loans and bonds, absent any new fundraising activities amid tight funding conditions and weak investor confidence.

Earlier this week, mainland media Cailian reported that Citic Trust has not yet signed any agreement with Shimao regarding the repayment extension for Rmb6bn of trust products.

Meanwhile, Rmb1.077bn of asset-back notes guaranteed by Shimao may not be redeemed on the maturity date of March 17 as the underlying assets have generated less income than expected, Yunnan International Trust, trustee of the ABN said in a filing dated February 22. A meeting with investors will be held on March 2, according to the filing. Shimao did not make a public announcement on the matter.

Leonard Law, senior credit analyst at research firm Lucror Analytics, said Moody’s latest downgrade is within expectations as Shimao’s liquidity has been under clear pressure for the past 2-3 months. 

"Should industry conditions remain poor, we view it is increasingly likely that the company will carry out an exchange offer, similar to transactions undertaken by peers," Law wrote in a note.

Shimao's US dollar bonds were trading in the low 30s to low 40s range.

By Carol Chan