Country Garden downgraded: Weak sales and margin outlook
S&P Global Ratings lowered its long-term issuer credit rating on Country Garden to 'BB' from 'BB+' on Sept. 19, 2022. “Sales decline had been more than we expected amid a prolonged industry downturn. This will weigh on the China-based developer's leverage and liquidity buffer over the next one to two years,” said the rating agency.
In S&P’s view, the developer has high exposure to lower-tier cities, with 66% saleable resources in these areas, and it will continue to face weaker and more volatile property demand in the coming months. Contracted sales in the remaining months of 2022 is therefore unlikely to meaningfully recover, after a 39% year-on-year dip during the first eight months of the year. Meanwhile, the company's construction expenditure is expected to remain higher than peers.
The rating agency also expect Country Garden ‘s margin pressure to persist as suggested by the impairment provision on inventory during the first half of 2022.
Proactive debt management, sales stabilization, coupled with access to onshore funding channels will be key to avoid further leverage and liquidity deterioration, S&P noted.
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