Chinese developer Sunac suffers downgrades on funding worries

[BEIJING] China's third largest developer by sales received its second credit downgrade in as many days, highlighting concerns over builders once perceived as safer bets.

Sunac China Holdings was dropped a notch to BB- by S&P Global Ratings on Friday, following the same move by Fitch Ratings the previous day. Both credit assessors' outlook is negative.

They cited uncertainty about the developer's 2022 liquidity, with S&P saying that though it believes Sunac can meet this year's debt maturities, "the margin of error is eroding." Sunac declined to comment.

A prolonged liquidity crunch has left investors increasingly worried that even higher-rated and larger builders may suffer. A reported failed convertible bond deal by heavyweight Country Garden Holdings last week sent higher-rated developers' dollar bonds plunging to record lows, stirring worries that financing channels had become restrictive even for strong firms.

Its notes climbed Friday amid broader gains after announcing a US$500 million convertible-bond deal.

Fitch said Thursday that Sunac's access to debt capital markets is "largely closed." The builder sold shares at a 15 per cent discount earlier this month, sending its shares and dollar bonds plunging. The firm subsequently announced it had no short-term plan to issue any further shares.

S&P's afternoon downgrade announcement didn't cut into Friday gains for Sunac's stocks and debt. Shares rose more than 4 per cent and dollar bonds maintained an increase of nearly 3 cents on the dollar.

BLOOMBERG