There were 10 defaults from companies rated by S&P Global Ratings in Greater China in 2021, up from seven in 2020. Six of the 10 defaults were from the distressed real estate sector. S&P Global Ratings estimates roughly one-third of property developers are in some form of financial trouble in the region, which could mean more defaults from this sector in the future. For more information, see "China's Banks Face A Doubling In Real Estate NPLs," published Dec. 15, 2021.

Issuer credit ratings in Greater China (China, Hong Kong, Macau, and Taiwan) remained good indicators of relative default risk in 2021. We found a strong negative correlation between rating levels and the frequency of default over the 22 years from 2000 to 2021. Moreover, higher ratings have generally been more stable than lower ratings.

The one-year average Gini ratio was strong at 91% in Greater China last year. The three-year Gini ratio for Greater China was 85.57%. By comparison, the global one-year Gini ratio was 82.6%, and the global three-year Gini ratio was 75.35% (see table 1). Gini ratios are measures of the rank-ordering power of ratings over a given time horizon. They show the ratio of actual rank-ordering performance to theoretically perfect rank ordering (for details on the Gini methodology, refer to Appendix III).

Table 1

We also found that higher ratings correspond with stronger ratings stability in Greater China for both state-owned enterprises (SOEs) and non-SOEs. The Greater China SOE 2000-2021 one-year Gini coefficient was 99.4%, the three-year was 96.9%, and the five-year was 98.9%. For the same period, the Greater China non-SOE one-year Gini ratio was 87.29%, the three-year was 81.5%, and the five-year was 73.0% (see table 2). The small sample sizes of rated issuers in Greater China, combined with issuer-specific factors that lead to defaults, may yield stronger variation in Gini coefficients in the region than globally.

Table 2

Greater China has a high proportion of investment-grade (rated 'BBB-' or higher) companies, which tend to default less than their lower-rated peers. Issuers in the investment-grade category are overall better equipped to weather deteriorating credit conditions than those in the lower rating categories, like 'B' and 'CCC'. These rating categories are where most downgrades and defaults would likely be concentrated if market conditions deteriorate.

In this study, we examined the ratings performance of more than 1,000 Greater China-based issuers rated by S&P Global Ratings. We included in this study entities that have business operations in Greater China, regardless of the market they are incorporated in. In several instances, entities included in this study were incorporated in foreign tax havens like the Cayman Islands. While S&P Global Ratings rated issuers in Greater China prior to 2000, we have limited the scope of analysis to issuers rated from 2000 to 2021. The statistics refer only to corporate ratings, including those on financial and nonfinancial entities. Our methodology and the definitions of the terms we use in this study are in Appendix I.

Rated Issuers In Greater China

Given the strong presence of SOEs in Greater China, there is an inherent relationship between the sovereign credit rating on China and the ratings on many corporations based in Greater China. On June 29, 2022, S&P Global Ratings affirmed its unsolicited 'A+' long-term and 'A-1' short-term sovereign credit ratings on China. The outlook on the long-term ratings is stable, reflecting our view that economic disruptions will likely be temporary and fiscal performance should start to improve over the next three to four years. Although the government has announced various support measures, we expect the fiscal impact to be modest, given the government has refrained from aggressive stimulus measures (see "China Ratings Affirmed At 'A+/A-1'; Outlook Remains Stable," June 29, 2022).

At the end of 2021, investment-grade ratings represented 77.1% of all Greater China corporate ratings, up from 73.6% in 2020 (see chart 1) and higher than 49.1% globally, 42.0% in the U.S., and 53.8% in Europe.

For 2021, the median rating for Greater China companies was 'BBB+' (higher than the global median rating of 'BB+'), with a median rating of 'BBB+' for financial issuers and 'BBB' for nonfinancial issuers. By comparison, the median rating for U.S. companies overall in 2021 was 'BB', with a median rating of 'A-' for financial issuers and 'B+' for nonfinancial issuers. The global median ratings were 'BBB+' for financials and 'BB' for nonfinancials.

The number of rated issuers in Greater China soared to 545 by the end of 2021 from 77 at the end of 2000, particularly in the 'A' and 'BBB' categories.

Upgrades Outpaced Downgrades

Downgrades rose to 48 in 2021 from 11 in 2020, and upgrades fell to 23 from 30 (see chart 2), yielding an upgrade-to-downgrade ratio of 0.48 to 1, down from 2.7 to 1 last year.

All of our default studies have found a clear correlation between ratings and defaults. Over every time horizon, lower ratings correspond to higher default rates (see chart 3). We found the same when examining the data by rating as well as by region. As the Gini ratios show, the ability of corporate ratings to serve as effective measures of relative risk remains intact over time, particularly in low-default years.

For all rated corporate entities in Greater China, the default rate was 1.44% in 2021, higher than 1.23% in 2020 (see table 3). This is out of line with the global trend--the global default rate for all rated corporate entities dropped to 0.8% in 2021 (with a total of 72 defaults) from 2.8% (with a total of 226 defaults) in the prior year.

The speculative-grade corporate default rate for Greater China rose to 5.44% in 2021 from 4.2% in 2020, reaching the highest rate since 2015 (7.14%). For comparison, the global speculative-grade corporate default rate fell to 1.68% in 2021 from 5.52% in 2020, the U.S. rate fell to 1.54% from 6.66%, the European rate fell to 1.8% from 3.18%, and the emerging market rate fell to 1.84% from 3.18% (see chart 5).

Table 3

Table 4

Higher ratings tend to be more stable over time. In Greater China, the percentage of unchanged ratings was 77.1% in 2021 (see table 5). In comparison, the percentage of unchanged ratings globally was 75.1% in 2021.

Table 5

There has been a drop in new issuer ratings in Greater China since 2017 (see table 6). In 2021, we rated 48 new issuers, down from 52 in 2020 and down from the all-time high of 121 in 2018. The total number of issuers rated by S&P Global Ratings in Greater China was 545 at year-end 2021, down from 556 issuers at year-end 2020.

Table 6

Higher Ratings Are Consistent With Fewer Defaults

Globally, higher-rated entities take a longer time to default than lower-rated entities, and this holds true for Greater China issuers even though the population of issuers is much smaller (see table 7). Using the original rating category for those issuers that have defaulted, 'BB' issuers defaulted on average after 5.5 years, 'B' issuers defaulted after 3.6 years, and 'CCC'/'C' issuers defaulted after 0.8 year. The pattern of lower-rated issuers defaulting in shorter time spans is similar to that for global issuers.

The two 'BBB' defaults are exceptions, both for being the only investment-grade defaults in Greater China and for defaulting much sooner than the initial ratings would suggest. The two defaulting issuers were Fujian International Trust & Investment Corp., which defaulted in 2002, and the Tianjin International Trust & Investment Corp., which defaulted in 2000. Both were not rated at the time they defaulted.

Table 7

One-year default rates by rating modifier (the plus or minus after the rating) show that the highest rating level to see a default in Greater China was 'BB', in 2008 (see table 8). Average default rates should increase as the rating falls. However, there can be outliers, especially when dealing with a smaller number of issuers such as in Greater China. Average annual defaults increase as ratings fall to 'B' from 'BB' in Greater China, but the default rate for 'B-' (2.95%) is actually higher than the rate for 'B' (2.12%). The highest average annual default rate is at 'CCC'/'C', with 30.05%.

Table 8

Defaults By Industry

Of the 10 Greater China defaults in 2021, six were from publicly rated companies. They were:

• Sunshine 100 China Holdings Ltd., which defaulted twice in the year,
• Sichuan Languang Development Co. Ltd.,
• Fantasia Holdings Group Co. Ltd.,
• Sinic Holdings (Group) Co. Ltd.,
• China Aoyuan Group Ltd., and
• China Evergrande Group.

All six were rated 'B+' or below at the beginning of the year. See Appendix IV for more details.

Only three Greater China sectors had defaults in 2021 (see table 9). Homebuilders/forest and building products led with a 7.89% default rate, followed by real estate issuers with 6.15% and health care/chemical issuers with 5%. Defaults in these sectors are rare, with no defaults in 17 of 22 years for homebuilders, 18 of 22 years for real estate, and 15 of 18 years for health care.

As usual, all defaults among Greater China issuers were from nonfinancial issuers (see table 10). The average one-year default rate for all nonfinancial issuers from 2000 to 2021 is 1.1%, lower than the nonfinancial default rate in 2021 of 2.35%.

Table 9

Table 10

Transition Tables And Cumulative Default Rates

For 2021 rating transitions, we saw roughly comparable stability between Greater China issuers and global issuers (see table 11). While there were no 'AAA' ratings in 2021 in Greater China (there have not been 'AAA' ratings among Greater China issuers since the end of 2016), 'AA' and 'A' issuers were more stable in Greater China than globally. Low investment-grade and high speculative-grade issuers were roughly as stable as their global counterparts. The small sample size of low speculative-grade ratings ('BB' through 'CCC'/'C') in Greater China makes direct comparisons to the global population less appropriate.

Likewise, looking at 2021 defaults as a percentage of rating categories, there were only five 'CCC'/'C' Greater China ratings at the start of 2021--so the 60% default rate represents only three defaults.

We also track defaults even after the ratings on the issuers are withdrawn. For example, if a hypothetical issuer rated in January 2021 underwent a rating withdrawal in May 2021 and defaulted in December 2021, we would count it in the 2021 trailing-12-month default rate. In the trailing-12-month default rate for June 2021, this hypothetical issuer would not count because it was not rated at the start of the period (June 2021). Please see Appendix I for more details.

For average one-year transition rates, the long-term (2000-2021) trends of ratings behavior were similar for Greater China and global rated issuers (see table 12).

Table 11

Table 12

Looking at transitions on a two-year time horizon, we see similar rates of transition and stability when comparing Greater China to the global averages (see table 13). Where the comparison breaks down slightly is again in the stability rates for rating categories between 'BB' and 'CCC'/'C', due to the small sample size of Greater China speculative-grade ratings, coupled with a withdrawal rate higher than the global average.

Transitions at the rating modifier level display the same relationship as by rating category mostly, though differences in sample size occasionally create slight variations between adjacent ratings (see table 14).

Table 13

Table 14

The negative correlation between ratings and defaults in Greater China holds true over time, as the cumulative average default rates illustrate (see tables 15-16 and chart 7). The one-year cumulative average default rate for all Greater China issuers is 0.82% over one year, rising to 2.07% over three years and 2.97% over five years. While investment-grade issuers have defaulted after three or more years, none have done so from 'A' or higher.

Table 15

The default rates in the 'CCC'/'C' category are much higher than those in the higher rating categories. The relatively small sample sizes of some ratings in Greater China may add volatility to default rates and occasionally cause them to deviate from both global trends and expectations, as is the case for 'BB-' through 'B' (see table 16).

Table 16

Gini Ratios And Lorenz Curves

A quantitative measure of ratings performance indicates the relative rank ordering of ratings in Greater China is consistent across various time horizons. To measure ratings performance, or ratings accuracy, the cumulative share of issuers by rating is plotted against the cumulative share of defaulters in a Lorenz curve to render the accuracy of their rank ordering visually. For definitions and methodology, refer to Appendix III.

Our calculations indicate that the one-year transition to default in Greater China shows an average one-year Gini coefficient of 90.8%, a three-year Gini of 85.6%, and a five-year Gini of 78.5%. For Greater China, where SOEs play a critical role in the Chinese economy, we also differentiated the Gini by SOE and non-SOE: The average one-year SOE Gini coefficient was 99.4%, and the average one-year non-SOE Gini was 87.3%. These figures illustrate that SOEs show stronger rank ordering of ratings with respect to defaults, while non-SOEs follow global norms, albeit with slightly higher ratings performance.

If ratings only randomly approximated default risk, the Gini coefficient would be zero. On the other hand, if ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated entities, the Lorenz curve would capture all of the area in chart 11 above the diagonal, and the Gini coefficient would be 1.

As expected, the Gini coefficients decline as the time horizon lengthens because longer time frames allow for more credit degradation among higher-rated entities. In the one-year Greater China Lorenz curve, for example, 100% of defaults occurred in the speculative-grade category ('BB+' or lower), while speculative-grade ratings constituted only 32.78% of all Greater China corporate issuers (see chart 8). Likewise, the three-year Lorenz curve shows that speculative-grade issuers constituted 98.81% of defaulters and 33.96% of the entire sample (see chart 9). The five-year Lorenz curve shows that speculative-grade issuers constituted 96.43% of defaulters and only 34.53% of the entire sample (see chart 10).

If the rank ordering of ratings had little predictive value, the cumulative share of defaulting corporate entities and the cumulative share of all entities would be nearly the same.

Appendix I: Default Methodology And Definitions

This long-term corporate default and rating transition study uses S&P Global Market Intelligence's CreditPro® database of long-term local currency issuer credit ratings. Most tables and charts in this study are the direct output of the CreditPro® application, while others are based on manipulation of the underlying database.

An issuer credit rating reflects S&P Global Ratings' forward-looking opinion of a company's overall creditworthiness. This opinion focuses on the obligor's capacity and willingness to meet its financial commitments as they come due. It does not apply to any specific financial obligation because it does not take into account the nature and provisions of the obligation, its standing in bankruptcy or liquidation, its statutory preferences, or the legality and enforceability of the obligation. It is not necessary for a company to have rated debt to be assigned an issuer credit rating.

Although the ratings on a company's very senior forms of secured debt, particularly ones with strong covenants, could occasionally be higher than the issuer credit rating on the company, specific issues are typically rated as high as or lower than these issuer ratings, depending on their relative priority within the company's debt structure. If they are speculative-grade, issuer credit ratings are generally two notches higher than subordinated debt ratings. Otherwise, they are generally one notch higher. Therefore, although a 'BB+' issuer credit rating is generally paired with a 'BB-' subordinated debt rating, a 'AA' issuer credit rating usually corresponds to a 'AA-' subordinated rating.

Our ongoing enhancement of the CreditPro® database used to generate this study could lead to outcomes that differ to some degree from those reported in previous studies. However, this poses no continuity problem because each study reports statistics back to Dec. 31, 1980. Therefore, each annual default study is self-contained and effectively supersedes all previous versions.

Issuers included in this study

This study analyzes the rating histories of over 1,000 Greater China entities that S&P Global Ratings rated from Jan. 1, 2000, through Dec. 31, 2021. These include industrials, utilities, financial institutions, and insurance entities with long-term local currency ratings. The analysis excludes public information (pi) ratings and ratings based on the guarantee of another company. Structured finance vehicles, public-sector issuers, and sovereign issuers are the subjects of separate default and transition studies, and we excluded these from this study.

To avoid overcounting, the CreditPro® database excludes subsidiaries with debt that is fully guaranteed by a parent or with default risk that is considered identical to that of a parent. The latter are entities with obligations that are not legally guaranteed by a parent but that have operating or financing activities that are so inextricably entwined with those of the parent that it would be impossible to imagine the default of one and not the other. At times, however, some of these subsidiaries might not yet have been covered by a parent's guarantee, or the relationship that combines the default risk of parent and subsidiary might have come to an end or might not have begun. We included such subsidiaries for the period during which they had a distinct and separate risk of default.

Issuers with withdrawn ratings

S&P Global Ratings withdraws ratings when an entity's entire debt is paid off or when the program or programs rated are terminated and the relevant debt extinguished. For the purposes of this study, a rating may be withdrawn as a result of mergers and acquisitions. Others are withdrawn because of a lack of cooperation, particularly when a company is experiencing financial difficulties and refuses to provide all the information needed to continue surveillance on the ratings, or at the entity's request.

Definition of default

An obligor rated 'SD' (selective default) or 'D' (default) is in payment default on one or more of its financial obligations (rated or unrated) unless S&P Global Ratings believes that such payments will be made within five business days, irrespective of any grace period. S&P Global Ratings also lowers a rating to 'D' upon an issuer's filing for bankruptcy or taking a similar action that jeopardizes payments on a financial obligation.

A 'D' rating is assigned when S&P Global Ratings believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. S&P Global Ratings assigns an 'SD' rating when it believes the obligor has selectively defaulted on a specific issue or class of obligations but will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. A selective default includes the completion of a distressed exchange offer, whereby one or more financial obligations are either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.

'R' (regulatory intervention) indicates that an obligor is under regulatory supervision owing to its financial condition. This does not necessarily indicate a default event, but the regulator might have the power to favor one class of obligations over others or pay some obligations and not others.

Preferred stock is not considered a financial obligation; thus, a missed preferred stock dividend is not normally equated with default.

We deem 'D', 'SD', and 'R' issuer credit ratings to be defaults for the purposes of this study. A default is assumed to take place on the earliest of the date S&P Global Ratings revised the rating(s) to 'D', 'SD', or 'R'; the date a debt payment was missed; the date a distressed exchange offer was announced; or the date the debtor filed for or was forced into bankruptcy.

When an issuer defaults, it is not uncommon for S&P Global Ratings to subsequently withdraw the 'D' rating. For the purposes of this study, if an issuer defaults, we end its rating history at 'D'. If any defaulting entity reemerges from bankruptcy, or otherwise restructures its defaulted debt instruments, thereby reestablishing regular, timely payment of all its debts, we reenter this issuer into the database as a new entity. Its rating history after the default event is included in all calculations as entirely separate from its experience leading up to its earlier default.

Calculations

Static pool methodology.  We conduct our default studies on the basis of groupings called static pools. For the purposes of this study, we form static pools by grouping issuers by rating category at the beginning of each year that the CreditPro® database covers. Each static pool is followed from that point forward. All entities included in the study are assigned to one or more static pools. When an issuer defaults, we assign that default to all of the static pools to which the issuer belonged.

We use the static pool methodology to avoid certain pitfalls in estimating default rates, such as by ensuring that default rates account for rating migration and can be calculated across multiperiod time horizons. Some methods for calculating default and rating transition rates might charge defaults against only the initial rating on the issuer, ignoring more recent rating changes that supply more current information. Other methods may calculate default rates using only the most recent year's default and rating data, which may yield comparatively low default rates during periods of high rating activity because they ignore prior years' default activity.

The pools are static in the sense that their membership remains constant over time. Each static pool can be interpreted as a buy-and-hold portfolio. Because errors, if any, are corrected by every new update and because the criteria for inclusion or exclusion of entities in the default study are subject to minor revisions as time goes by, it is not possible to compare static pools across different studies. Therefore, every update revises results to the same starting date so as to avoid continuity problems.

Entities that have had ratings withdrawn--that is, revised to not rated--are surveilled with the aim of capturing a potential default. Because static pools only include entities with active ratings as of the beginning date of a given pool, we exclude entities with withdrawn ratings, as well as those that have defaulted, from subsequent static pools. If the rating on an entity is withdrawn after the start date of a particular static pool and the entity subsequently defaults, we will include it in that static pool as a default and categorize it in the rating category of which it was a member at that time.

For instance, the 2000 static pool consists of all entities rated as of 12:01 a.m. on Jan. 1, 2000. Adding those entities first rated in 2000 to the surviving members of the 2000 static pool forms the 2001 static pool. All rating changes that took place are reflected in the newly formed 2001 static pool through the ratings on these entities as of 12:01 a.m. on Jan. 1, 2001. We used the same method to form static pools for 2000 through 2021.

Consider the following example: An issuer is originally rated 'BB' in mid-2006 and is downgraded to 'B' in 2008. This is followed by a rating withdrawal in 2010 and a default in 2013. We would include this hypothetical company in the 2007 and 2008 pools with the 'BB' rating, which was the rating on the issuer at the beginning of those years. Likewise, it would be included in the 2009 and 2010 pools with the 'B' rating. It would not be part of the 2006 pool because it was not rated as of the first day of that year, and it would not be included in any pool after the last day of 2010 because the rating had been withdrawn by then. Yet each of the four pools in which this company was included (2007-2010) would record its 2013 default at the appropriate time horizon.

Default rates.  We calculated annual default rates for each static pool, first in units and then as percentages with respect to the number of issuers in each rating category. Finally, we combined these percentages to obtain cumulative default rates for the 21 years covered by the study.

Issuer-weighted default rates.  All default rates that appear in this study are based on the number of issuers rather than the dollar amounts affected by defaults or rating changes. Although dollar amounts provide information about the portion of the market that is affected by defaults or rating changes, issuer-weighted averages are more useful measures of the performance of ratings.

Many practitioners utilize statistics from this default study and CreditPro® to estimate "probability of default" and "probability of rating transition." It is important to note that S&P Global Ratings' credit ratings do not imply a specific probability of default.

Cumulative average default rates.  We derived cumulative default rates that average the experience of all static pools by calculating marginal default rates, conditional on survival (survivors being nondefaulters), for each possible time horizon and for each static pool, weight-averaging the conditional marginal default rates, and accumulating the average conditional marginal default rates. Conditional default rates are calculated by dividing the number of issuers in a static pool that default at a specific time horizon by the number of issuers that survived (did not default) to that point in time. Weights are based on the number of issuers in each static pool. Cumulative default rates are one minus the product of the proportion of survivors (nondefaulters).

For instance, the hypothetical weighted average first-year default rate for 'B' rated entities in Greater China for all 21 pools was 2%, meaning that an average of 98% survived one year. Similarly, the second- and third-year conditional marginal averages were 3% for the first 20 pools (98% of those entities that did not default in the first year survived the second year) and 3% for the first 18 pools (97% of those entities that did not default by the second year survived the third year). Multiplying 97.81% by 96.75% results in a 94.6% survival rate to the end of the second year, which yields a two-year cumulative average default rate of 5.4%. Multiplying 97.41% by 94.64% results in a 92.19% survival rate to the end of the third year, which yields a three-year cumulative average default rate of 7.81%.

Time sample.  This update limits the reporting of default rates in Greater China to the 22-year time horizon, and we based all calculations on the rating experience of that period. Global data is based on a 41-year time horizon. The maturities of most obligations are much shorter than 22 years. In addition, average default statistics become less reliable at longer time horizons because the sample size becomes smaller and the cyclical nature of default rates has a bigger effect on averages.

Default patterns share broad similarities across all static pools, suggesting that S&P Global Ratings' credit rating standards have been consistent over time. Adverse business conditions tend to coincide with default upswings for all pools. These upswings have hit speculative-grade issuers the hardest, but investment-grade default rates also increase during stressful periods.

Transition analysis

Transition rates compare issuer credit ratings at the beginning of a period with ratings at the end of the period. To compute one-year rating transition rates by rating category, we compared the rating on each entity at the end of a particular year with the rating at the beginning of the same year. An issuer that remained rated for more than one year was counted as many times as the number of years it was rated. For instance, an issuer continually rated from the middle of 2004 to the middle of 2011 would appear in the six consecutive one-year transition matrices from 2005 to 2010. All 2003 static pool members still rated on Dec. 31, 2015, had 12 one-year transitions, while entities first rated between Jan. 1, 2015, and Dec. 31, 2015, had only one.

Each one-year transition matrix displays all rating movements between letter categories from the beginning of the year through year-end. For each rating listed in the matrix's leftmost column, there are nine ratios listed in the rows, corresponding to the ratings from 'AAA' to 'D', plus an entry for not rated (NR). For instance, the first panel of table 11, which corresponds to the 2021 static pool, shows that out of all 'BBB' rated entities at the beginning of that year, 91.5% were rated the same at year-end, while S&P Global Ratings had upgraded 0.47% to 'A', and so on.

Average one-year transition matrices were calculated on the basis of the one-year transition matrix just described. The ratios represent the historical incidence of the ratings listed in the first column changing to the ones listed in the top row over the course of the reference period.

Multiyear transitions.  We also calculated multiyear transitions for periods of two to five years. In this case, we compared the rating at the beginning of the multiyear period with the rating at the end. For example, average two-year transition matrices were the result of comparing ratings at the beginning of the years 2000-2020 with the ratings at the end of the years 2001-2021 (see table 13). Otherwise, the methodology was identical to that used for single-year transitions.

Comparing transition rates with default rates.  For more information on the differences between transition rates and default rates, please see the section "Comparing transition rates with default rates" in Appendix I of "2021 Annual Global Corporate Default And Rating Transition Study."

Appendix II: Additional Tables

Table 17

Table 18

Table 19

Table 20

Table 21

Table 22

Table 23

Appendix III: Gini Methodology

To measure ratings performance, or ratings accuracy, we plotted the cumulative share of issuers by rating against the cumulative share of defaulters in a Lorenz curve to visually render the accuracy of their rank ordering. The Lorenz curve was developed by Max O. Lorenz as a graphical representation of the proportionality of a distribution.

To build the Lorenz curve, the observations are ordered from the low end of the ratings scale ('CCC'/'C') to the high end ('AAA'). If S&P Global Ratings' corporate ratings only randomly approximated default risk, the Lorenz curve would fall along the diagonal. Their Gini coefficient--which is a summary statistic of the Lorenz curve--would thus be zero. If corporate ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated entities, the curve would capture all of the area above the diagonal on the graph, and the Gini coefficient would be 1 (see chart 11).

The procedure for calculating the Gini coefficients is to divide area B by the total of area A plus area B. In other words, the Gini coefficient captures the extent to which actual ratings accuracy diverges from the random scenario and aspires to the ideal scenario.

Appendix IV: Defaults In Profile

In 2021, there were 10 defaults from rated companies, including three confidential issuers, in Greater China, amounting to a total of $13.91 billion of defaulted debt. Sunshine 100 China Holdings Ltd. defaulted twice, in March and August 2021. This appendix provides summaries of the events leading up to each default and, in some cases, events following the default. We also list the defaulting instruments that S&P Global Ratings rates for each company.

Sunshine 100 China Holdings Ltd.

On March 2, 2021, S&P Global Ratings lowered its issuer credit rating on China-based (Cayman Islands-incorporated) company Sunshine 100 China Holdings Ltd. to 'SD' from 'CCC-'. The downgrade followed the completion of Sunshine's repurchase of Hong Kong dollar (HK) $750 million convertible bonds below par. We considered the repurchase to be distressed and tantamount to a default given noteholders received less than the original promise.

On March 4, 2021, we raised our issuer credit rating on Sunshine 100 China Holdings to 'CCC-' from 'SD'. The negative outlook reflected our view that Sunshine's default risk remained elevated, considering its hefty maturities in 2021, including various domestic bonds, trust financing, and U.S. dollar-denominated senior notes.

On Aug. 11, 2021, S&P Global Ratings lowered its long-term issuer credit rating on Sunshine 100 China Holdings Ltd. to 'SD' from 'CCC-' following nonrepayment of principal and interest totaling US$52.4 million on its convertible bond due Aug. 11, 2021.

On Aug. 27, 2021, we revised our long-term issuer credit rating on Sunshine 100 China Holdings Ltd. to 'D'. The company had not been able to follow through with its plan to repay principal and interest totaling US$52.4 million on its convertible bond within 10 business days from the original maturity of Aug. 11, 2021. The company's management did not provide a new repayment timeline on this selective default after it failed to raise necessary funds, as originally planned. As the China-based developer struggled to obtain new financing, this could also trigger cross-defaults and accelerated repayment demand on the company's other debts, including its U.S. dollar bonds and domestic borrowings.

On Sept. 27, 2021, we withdrew our long-term issuer credit rating at the company's request.

Table 24

Sichuan Languang Development Co. Ltd.

On July 13, 2021, S&P Global Ratings lowered its long-term issuer credit rating on China-based property developer Sichuan Languang Development Co. Ltd. to 'D' from 'CCC-' after the company failed to repay interest and principal totaling about Chinese renminbi (RMB) 968 million on its medium-term note due July 11, 2021. We did not expect the company to be able to repay the note within the stated grace period of 10 days, given its exceptionally weak liquidity.

Later, on July 13, 2021, we withdrew our long-term issuer credit rating at the company's request.

Earlier, on June 18, 2021, we lowered our long-term issuer credit rating on Sichuan Languang to 'CCC-' from 'B-'. The company faced high nonpayment risk, given its domestic bonds totaling RMB4.2 billion coming due over the next three months, with the first maturity on July 11, 2021. Also, there had been a lack of progress on Sichuan Languang's project disposal plan.

Table 25

Fantasia Holdings Group Co. Ltd.

• US$500 million 7.375% notes due Oct. 4, 2021
• US$300 million 7.95% notes due July 5, 2022
• US$300 million 11.75% notes due April 17, 2022
• US$200 million 12.25% callable notes due Oct. 18, 2022
• US$450 million 10.875% notes due Jan. 9, 2023
• US$200 million 14.50% callable notes due June 25, 2024

On Oct. 5, 2021, S&P Global Ratings lowered its long-term issuer credit rating on China-based (Cayman Islands-incorporated) residential and commercial property developer Fantasia Holdings Group Co. Ltd. to 'SD' from 'CCC' after it failed to repay its principal of US$206 million due Oct. 4, 2021, on its senior notes. The company's missed payment highlighted its strained liquidity position despite sufficient cash on hand. Its liquidity position was further pressured by worsening funding conditions and slower-than-expected asset disposals.

Earlier, on Sept. 29, 2021, we lowered our long-term issuer credit rating on Fantasia Holdings Group Co. Ltd. to 'CCC' from 'B', reflecting substantial risk of nonrepayment of the company's debt obligations totaling US$760 million over the next six months. The downgrade also reflected the company's failure to communicate a concrete repayment plan despite imminent maturity.

On Dec. 14, 2021, we withdrew our long-term issuer credit ratings on Fantasia Holdings Group Co. Ltd. at the issuer's request.

Table 26

Sinic Holdings (Group) Co. Ltd.

On Oct. 19, 2021, S&P Global Ratings lowered its long-term issuer credit rating on China-based (Cayman Islands-incorporated) residential property developer Sinic Holdings (Group) Co. Ltd. to 'SD' from 'CC' following nonrepayment of principal and interest on the company's US$250 million offshore senior unsecured notes due Oct. 18, 2021. The company failed to meet its obligations despite holding RMB14 billion in cash on hand as of June 30, 2021.

Later, on Nov. 4, 2021, we withdrew our long-term issuer credit rating at the company's request.

Earlier, on Oct. 4, 2021, we lowered our long-term issuer credit rating on Sinic Holdings (Group) Co. Ltd. to 'CC' from 'CCC+', reflecting the likelihood of default on its US$246 million senior unsecured notes due Oct. 18, 2021, due to strained liquidity.

Table 27

China Aoyuan Group Ltd.

• US$250 million 5.375% notes due Sept. 13, 2022
• US$225 million 7.95% notes due Jan. 19, 2023
• US$460 million 6.35% callable notes due Jan. 8, 2024

On Dec. 6, 2021, S&P Global Ratings lowered its long-term issuer credit rating on China-based property developer China Aoyuan Group Ltd. to 'SD' from 'CCC' following nonrepayment of principal of around US$651.2 million.

Earlier, on Nov. 16, 2021, we lowered our long-term issuer credit rating on the company to 'CCC' from 'B' because we believed the company might not have access to its cash balance to fulfill its debt obligations. The rating action reflected nonpayment risk in the absence of timely alternate fundraising plans.

On Dec. 6, 2021, we withdrew our long-term issuer credit ratings on China Aoyuan Group Ltd. at the issuer's request.

Table 28

China Evergrande Group

• US$1.345 billion 7.50% notes due June 28, 2023
• US$4.68 billion 8.75% notes due June 28, 2025
• US$1.45 billion 9.50% callable notes due April 11, 2022
• US$850 million 10.00% callable notes due April 11, 2023
• US$700 million 10.50% callable notes due April 4, 2024
• US$1 billion 11.50% notes due Jan. 22, 2023
• US$1 billion 12.00% notes due Jan. 22, 2024

On Dec. 17, 2021, S&P Global Ratings lowered its long-term issuer credit rating on Cayman Islands-based property development business company China Evergrande Group to 'SD' from 'CC'. The company had failed to make coupon payments on its outstanding U.S. dollar senior notes. The grace periods for payments had also lapsed.

On Dec. 17, 2021, we withdrew the long-term issuer credit rating on China Evergrande Group.

Table 29

Related Research

• 2021 Annual Asia Corporate Default And Rating Transition Study, Dec. 12, 2022
• 2021 Annual Global Corporate Default And Rating Transition Study, April 13, 2022