S&P Global Ratings revised its outlook on China Evergrande Group, as well as on units Hengda Real Estate Group Co. Ltd and Tianji Holding Ltd., to stable from positive.
Ratings said the change in outlook reflects its view that the property developer's liquidity profile and leverage are unlikely to improve given its increasing reliance on short-term funding. Stricter financing policies in China could also worsen the company's weakening liquidity profile.
Further, Ratings expects the company to experience a slowdown in contracted sales growth and lower margins. EBITDA is expected to stagnate in the next one to two years resulting in an estimated increase in debt-to-EBITDA ratio by 6x to 7x.
In the first half of 2019, China Evergrande's short-term obligations grew by 18% to 375 billion yuan, while its profit attributable to shareholders declined 51.6% to 14.92 billion yuan.
Downside risk on China Evergrande's liquidity, however, remains manageable as the company could use an ample unrestricted balance of 207 billion yuan to mitigate risks, the rating agency said. Given its substantial land bank, which could last for about five years, the company has room to trim land acquisitions and time to manage its liquidity to prepare for repayment of strategic investments, Ratings added in a Sept. 4 release.
The B+ long-term issuer credit ratings on the three companies were affirmed.
As of Sept. 4, US$1 was equivalent to 7.14 Chinese yuan.
Descriptions of credit ratings in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings document referred to in this news brief can be found here.
