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Moody's downgraded Chinese developer Vanke's bond rating amid the latest outbreak of stress in China's troubled real estate sector.
Vanke, China's second-largest developer by sales, has state backing and has retained an investment-grade rating despite a wave of defaults in the sector since the collapse of China Evergrande in 2021.
In recent weeks, the company has become the focus of a slowdown in the property market, putting pressure on policymakers in Beijing as they seek to boost confidence in the world's second-largest economy.
Moody's Ratings withdrew the company's investment-grade issuer rating, downgraded other bond ratings and put it under review for further downgrades late Monday. The company said it expects the company's “credit metrics, financial flexibility and liquidity buffers” to weaken over the next 12 to 18 months.
The ratings agency noted “a decline in contracted sales,” which is expected to fall 40% year-on-year in the first two months of the year to 34.5 billion yuan ($4.8 billion), and “increased uncertainty about financing channels.”
China's real estate sector, which typically accounts for more than a quarter of economic activity, has struggled for more than two years with construction delays and developer financing woes following a government crackdown on leverage. Prices of new homes in major cities have fallen every month since June, according to Bloomberg calculations based on data from the National Bureau of Statistics.
Vanke's problems highlight the extent to which the industry's weaknesses have spread to companies previously seen as highly stable and part of the government's drive to revive economic activity. Vanke is partly owned by the southern city of Shenzhen Metro.
Fitch Ratings downgraded Vanke's rating to 3B from 3B+ in October, citing lower-than-expected sales. Chinese property developers have borrowed heavily in international markets over the past decade, but many have been locked in restructuring discussions and struggled to find funding.
Moody's said that approximately 14 billion yuan of Vanke's international bonds and 20 billion yuan of domestic bonds are about to mature this year. One of the international bonds due in May 2025 is currently trading at 68.4 cents, down from 82.7 cents at the beginning of the year.
Leonard Law, an analyst at Lucror Analytics in Singapore, said he expected the notes due in June to be repaid due to “regulators' efforts to coordinate financing support and the company's plan to prioritize repayments of public bonds.”
“Having said that, we are cautious on Vanke's long-term notes,” he added.
Vanke said, “Currently, operating fundamentals are normal, financing channels are stable, and refinancing is operating normally.”
Additional reporting by Cheng Leng and Andy Lin in Hong Kong
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