Moody's Investors Service has assigned Country Garden Holdings Co Ltd, the largest builder in China based on sales, a Ba1 corporate family rating (CFR).
The developer's senior unsecured rating was reduced from Baa3 to Ba1, taking it out of the investment-grade category.
The US-based credit rating agency also withdrew its Baa3 issuer rating for it. Additionally, it changed the company's rating outlook from "ratings under review" to "negative," and added that this completes the downgrade review that had been started on May 30 of this year.
"The rating downgrade reflects Country Garden's declining property sales and deteriorating financial metrics amidst the challenging operating conditions of the China property sector, as well as its weakened access to long-term funding," said Moody's senior vice president Kaven Tsang in a statement on June 22.
He said these negative developments no longer support the company's previous Baa3 issuer rating.
"While Moody's expects Country Garden to maintain a strong market position and good liquidity, the negative outlook reflects Country Garden's reducing liquidity buffer and financial flexibility, driven by falling property sales and continued weak market sentiment in the next six to 12 months," said Tsang.
This is Country Garden's second junk-level rating from major international credit assessors.
S&P Global Ratings has not rated the developer as investment-grade since 2008, according to information gathered by Bloomberg.
Country Garden's Malaysian unit Country Garden Real Estate Sdn Bhd (CGRE) is the developer for Forest City in Johor.
The US$100 billion Forest City is a joint venture between Esplanade Danga 88 Sdn Bhd, Kumpulan Prasarana Rakyat Johor Sdn Bhd, and Sultan Ibrahim Sultan Iskandar of Johor.
It has the legal authority to develop four islands with a combined area of around 20.05 sq km and a total projected development area of 30 sq km. It spreads across 1,740 hectares, or four times the size of city-state Monaco.
The project was created to draw in foreign capital, mainly from China, but it is now believed to be a "ghost town," with only 500 residents, some six years into development as opposed to the 700,000 that were once projected.
According to reports, the Covid-19 epidemic caused significant economic instability and nearly global travel restrictions, which negatively impacted Forest City's already-teetering sales, which fell by more than 90 per cent after March 2020.
Some of the development's occupants went back to their native countries after the Movement Control Order went into effect.
The remaining residents also encountered challenges due to travel limitations, particularly those who worked in Singapore or had children enrolled in Singaporean schools.
Some tenants have stopped operating completely or temporarily, citing MCO regulations or the development's lack of commercial viability.
In Forest City, there are two hotels - the Forest City Golf Hotel and the Forest City Marina Hotel. According to reports, the latter has been closed for two years.
Meanwhile, the poor outlook, according to Moody's, makes an upgrade of the Country Garden's ratings doubtful in the near future.
However, if Country Garden strengthens its access to long-term capital, boosts sales, and maintains stable financial metrics and solid liquidity throughout the downturn, it may change the rating outlook to stable.
Country Garden was previously in the spotlight due to worries about a spillover impact from the Evergrande Group debt crisis and the general slowdown of China's real estate construction sector last year,.
China Evergrande Group, the most indebted real estate developer in the world, is reportedly on track to meet its original timetable for announcing its preliminary restructuring plan by the end of July, according to a Reuters article from June 21.
Country Garden's offshore debt reportedly is deemed to be in default following late last year's missed payment requirements and is reeling under more than US$300 billion in liabilities.
