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Wednesday,
February 26, 2020 /1:30 PM / By Fitch Ratings /
Header Image Credit: The Motley Fool
This is a correction of a Fitch Wire published on 17
February 2020, to reflect an early bond redemption by Xinyuan Real Estate Co.,
Limited and recent capital-raising by Landsea Green Properties Co., Ltd, which
have reduced refinancing risks associated with maturities, resulting in an
adjustment of our risk assessment for these two companies to 'Low' from 'High',
as per the framework applied in this research.
The COVID-19 outbreak has affected operations of most
of the 166 Chinese corporates which are publicly rated by Fitch to varying
degrees. These issuers face a combined CNY583 billion-equivalent of domestic
and cross-border debt maturities from February through June 2020. According to
our latest assessment, we have identified 6%, or 10 issuers, that face moderate
to high risks in relation to their capital market debt maturities over this
period.
This assessment took into consideration a number of
factors in addition to the quantum of capital market debt maturities. These
included the potential impact on business operations from the virus outbreak;
capital market refinancing burdens; ownership structures (whether the entity
was state-linked); and pre-outbreak credit quality.
Overall, we assess the refinancing risk as low for 156
corporates, the vast majority; moderate for five; and high for only five. The
five issuers assessed at 'high', detailed in the table below, are currently
rated in the 'B' category or below, and are mostly homebuilders.
Most businesses in China will be affected by the
epidemic to varying degrees, but issuers in some sectors have more operational
and financial flexibility than others, for example the larger homebuilders. The
Chinese authorities have taken many measures to ease access to finance.
Notwithstanding this, refinancing risks associated with maturing capital-market
debt obligations - both domestic and cross-border - will persist over the next
few months. The risks are especially high for those issuers that were already
struggling prior to the outbreak of the virus.
Our assessment focuses on the capital market-related
refinancing needs of publicly rated Chinese corporates over February to June
2020, and identifies those that face an elevated level of risk in relation to
these debt maturities. Little over half (87) of these firms face local or
cross-border bond maturities during this five-month period. The pool of
companies whose low capital refinancing needs will mitigate the high impact of
the health crisis on their operations includes companies such as Dongfeng Motor
Group.
Capital market debt maturities over the five months to
June represent 10% or more of 2019F total debt for 14 issuers, and some have
less cash resources than their respective amount of capital market debt
maturities. However, many are state-linked entities that should have reasonable
capital market access.
State-owned enterprises account for the vast majority
of local bonds maturing over February-June 2020, with issuers in the energy and
utility sectors accounting for around two-thirds of domestic debt maturities.
Among cross-border bond maturities, private-sector issuers dominate, and
property sector issuers account for around half. The proportion of sub-investment-grade
issuers is also significantly higher for cross-border bonds than for domestic
bonds, with 'B+' and lower-rated issuers accounting for nearly 30%. Most of
these are homebuilders.
Our report, "Chinese Corporates: Coronavirus
Refinance Risk Screener", details our framework of assessment; identifies
issuers that face elevated risk in relation to their capital market debt
maturities; and provides issuer-level assessments and details of refinancing
requirements and associated risks.
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