MOODY’S cut the credit ratings of state-backed Chinese property developers Greenland Holdings and Sino-Ocean on Friday (Jul 28) after the former missed a bond payment last month and the latter made a last-minute bid this week to try and stave off default.

The rating agency downgraded Greenland’s corporate family rating (CFR) to Ca – a level that signals imminent default – and cut Sino-Ocean’s CFR to an almost as risky Caa2 from Caa1. It also kept ‘negative’ outlooks on both companies.

“The downgrade of Greenland Holding with a negative outlook reflects the company’s weak liquidity and our expectation of weak recovery prospects for Greenland Holding’s bondholders,” Moody’s analyst Daniel Zhou said explaining the cut.

Another of its analysts, Cedric Lai, said Sino-Ocean’s downgrade reflected its “weak liquidity and credit profile” and that the likelihood of support from its largest shareholder China Life Insurance “on a timely basis” had also diminished.

Troubles have been ratcheting up again in China’s property market in recent weeks sparking fears of another wave of Evergrande-style crises.

Shanghai-based Greenland failed to make a US$22.5 million bond payment that had been due on Jun 25 and though it did pay it this week, Moody’s said the delay indicated the extent of the company’s financial problems.

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The firm, which as well as its China projects built Sydney’s tallest residential tower and had planned to do the same in London, has sizable debt repayments over the next 12 to 18 months, including around US$900 million of bond maturities by the end of 2024.

“The company will have to rely on asset disposals or other fundraising plans for debt servicing, although such fundraising activities carry high uncertainties,” Moody’s said.

Sino-Ocean has also asked its bondholders this week to give it an additional two months to make US$50 million worth of interest payments that are coming up in the next couple of weeks on three of its international market bonds.

“Moody’s expects Sino-Ocean’s liquidity to be inadequate over the next 12-18 months if the company is unable to raise new external funding,” Moody’s said.

Once a key growth driver, China’s real estate sector is now a significant drag on its sputtering economy, with its prolonged slump spilling over into everything from construction to flagging consumer confidence.

This week China’s top leaders signalled additional support saying it was necessary to adapt to significant changes in market supply and demand and optimise property policies in a timely manner. REUTERS