S&P Global Ratings lowered China Vanke's (HKG:2202, SHE:000002) long-term issuer credit rating to B+ from BB- amid a likely erosion in its balance sheet and a significant decline in land acquisitions.
The developer's debt reduction progress is slower than expected, resulting in increased leverage, S&P said.
The company's target of cutting interest-bearing debt by 100 billion yuan between 2024 and 2025 also looks challenging, the rating agency said.
Weakening contracted sales and compressed margins worsen the situation, with EBITDA interest coverage expected to contract to between 1.9x and 2.1x and its leverage to rise to between 9.4x and 10.5x for 2024 to 2026, S&P said.
The rating agency also expects China Vanke's liquidity to deteriorate amid increased short-term debt and declining cash balances.
The company's efforts to boost liquidity such as noncore asset disposals would shrink its balance sheet and weigh on long-term competitiveness, S&P said.
The company's reduced land acquisitions could also undermine its market position and sales performance, S&P said.
Retaining solid banking relationships will be crucial for the company to tackle its liquidity concerns and secure necessary financing, according to the rating agency.
The outlook is negative, reflecting Fitch's view that the developer's contracted sales and liquidity could continue dropping in the next 12 months.
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