(Bloomberg) -- Moody’s cut China Vanke Co.’s debt rating deeper into junk territory, underscoring mounting pressure on the state-backed developer as it faces a cash crunch and declining sales.
The ratings firm, which stripped Vanke of its investment-grade rating in March, said the one-notch downgrade to B1 from Ba3 reflected expectations of weakening contracted sales and ongoing margin pressure.
Moody’s cut Vanke’s rating to Ba3 in April, a move Vanke said at the time “didn’t fully take Vanke’s efforts on operating, financing and liquidity into consideration.”
S&P and Fitch also have junk ratings on Vanke.
While Vanke has made some progress in getting financing support from domestic banks and has made efforts at deleveraging, there are deeper concerns about its financial health because of China’s continuing property market slump.
Vanke has set up a fund of about 2.2 billion yuan ($308 million) with other financial firms to acquire two subsidiaries, according to an Aug. 14 Shenzhen Stock Exchange filing. Its sales, meanwhile, continue to slump. Contracted sales for July fell 13% from a year earlier to 19.2 billion yuan. That followed a 29.3% slide in June, corporate filings show.
Vanke faces risks because of its sizable refinancing needs, but its “ability to raise long-term secured financing from onshore banks partially tempers the risks,” said Kaven Tsang, a Moody’s Ratings senior vice president.
Vanke has a total of 128.5 billion yuan of public bonds and loans outstanding, according to data compiled by Bloomberg.
Its 3.15% dollar bond due 2025 traded at around 86 cents on the dollar Wednesday, while its 3.5% dollar note due 2029 was at 54.4 cents, indicating greater fears of long-term risk.
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