China Evergrande Cut by Moody’s Despite Debt Progress

(Bloomberg) -- China Evergrande Group's credit rating was cut by Moody's Investors Service, the second downgrade by a global ratings company in less than two weeks.

Moody's lowered the grade by one notch to B2, it said in a statement Wednesday evening. “Although Evergrande has been reducing its debt to improve its financial stability, the company still faces sizeable maturing debt and puttable bonds over the next 12-18 months,” Moody's said.

Concern has been building over the troubled Shenzhen-based developer, which on Wednesday tried to reassure investors about its financial health, saying it has reduced its net debt-to-equity ratio to below 100%, as required by Chinese regulators. The firm has pared total borrowings to about 570 billion yuan ($88 billion) from 717 billion yuan in December.

“In addition, its trade payables increased to 622 billion yuan at the end of 2020 from 545 billion yuan at the end of 2019, which funded part of the debt reduction,” Moody's said.

Evergrande is disposing of assets and spinning off affiliates to raise money, but questions remain whether it can continue downsizing without triggering a crisis. Several Chinese banks are restricting credit to the developer, Bloomberg has reported.

Separately, Evergrande said late Wednesday it amended an agreement with investors in its online platform FCB Group. Following the change, founder Hui Ka Yan may have to buy back the holdings of 10 investors in the company if they demand a repurchase and Evergrande decides not to.

Moody's also downgraded its ratings on Evergrande subsidiaries Hengda Real Estate Group Co., Tianji Holding Ltd and Scenery Journey Ltd., which are either issuers or guarantors of its bonds overseas. The ratings are under review for further downgrade.

Investors in Evergrande's onshore bonds shrugged off the news. A note due 2023 rose 1.48 yuan to 86.48 yuan on Thursday morning, heading for the highest level in four weeks.

Evergrande's dollar note due 2025 remained steady at around 66.3 cents on the dollar after falling 1.3 cents Wednesday, Bloomberg-compiled prices show. Hong Kong's stock market was closed for a holiday on Thursday.

Fitch Ratings cut Evergrande's by one notch on June 22. Earlier this month, China's largest credit ratings firm China Chengxin International Credit Rating Co. put Evergrande's main onshore unit and domestic bonds on a watchlist.

With assistance from Bloomberg