Moody’s lowers Evergrande, rates notes B3

Moody’s Investors Service said it downgraded Evergrande Real Estate Group Ltd.’s corporate family rating to B2 from B1 and senior unsecured debt rating to B3 from B2.

The outlook is negative.

The agency also said it assigned a B3 rating to the company’s proposed dollar-denominated senior unsecured notes.

The proceeds from the issuance will be used to refinance the company’s existing debt and for general corporate purposes, Moody’s said.

The rating on the notes is notched down to B3 from its corporate family rating of B2 due to subordination risk from the company’s secured and subsidiary debt, the agency said.

The downgraded ratings reflect Evergrande’s increased level of financial risk due to its highly acquisitive appetite and debt-funded strategy for acquisitions, Moody’s said.

Moody’s said it considers the company’s recently announced acquisitions as highly aggressive, increasing business risk because the company is expanding when China’s property market remains challenging due to the oversupply of inventory in the lower tier cities.

Evergrande also still has land banks in these lower tier cities, the agency added.

The company’s debt leverage is expected to remain weak in the 47% to 53% range over the next 12 to 18 months compared with about 53% as of June 2015, Moody’s said.

The ratings also take into account Evergrande’s strong market position as one of the top five property developers in China in terms of contracted sales, the agency said.

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