By Tom Westbrook and Marc Jones
SYDNEY/LONDON/HONG KONG (Reuters) -Moody’s and S&P Global sent stark warnings about China’s biggest commercial real estate firm, Dalian Wanda Group, on Thursday, adding to concern that the country could be about to suffer its most high-profile default since Evergrande.
Moody’s slashed Dalian Wanda Commercial Management and Wanda HK’s ratings by six full notches, saying it was now “highly uncertain” whether DWCM would be able to make a $400 million debt payment that is due in just three days’ time.
S&P also said “non-payment risk” had risen after reports the firm had been scrabbling to find the cash needed by Sunday and for a $22 million interest payment that was supposed to paid on Thursday but has a 10-day grace period clause.
S&P said asset sales at parent Dalian Wanda, which is chaired by Wang Jianlin, once China’s richest man, were so far insufficient to support Wanda Commercial.
Dalian Wanda Group declined to comment.
“Based on our understanding, the company currently only has about $200 million in accessible offshore cash,” S&P said of Wanda Commercial, with further funds already pledged against onshore borrowing.
“Given the tight timeline,” it said “execution risk” was high and lowered its rating on the company’s debts to “speculative grade” CCC.
Moody’s cut it to Caa1, which is one notch on the rating ladder above S&P’s score. But it also cut Wanda Commercial Properties HK to an even lower Caa3.
“There is high uncertainty over DWCM’s ability to address its debt repayment due in the next 3-6 months, including its $400 million bond maturity due on 23 July,” Moody’s said, adding that the company’s ability to mobilise its cash was in question.
A default by Wanda, which had managed to sell new bonds at the beginning of year, including to international funds such as Blackrock, Fidelity, Pictet and Invesco, would signal another leg in China’s long-running property crisis.
Wanda Commercial’s bonds have slumped dramatically this week as concerns about its fate have mounted, although Thursday’s moves were highly volatile.
A Bloomberg report that some of DWCM’s creditors had been told the firm expects to complete an asset disposal as early as this week to fund the $400 million bond payment saw the key bond due on Sunday leap almost 40 cents at one point, traders said.
Wanda Commercial’s 2025 and 2026 maturing bonds rose over 5 cents, Tradeweb data showed, although that still left both bonds at less than a third of their original face value.
ECHO OF EVERGRANDE
Other high profile but debt-strained China property names also suffered sizable sell-offs this week as more negative news has emerged around the sector that contributed around 25% of China’s GDP before it was battered by a government crackdown and collapse in home sales over the last couple of years.
Since the poster-child of the crisis, China Evergrande, defaulted in 2021 there has been a rash of other defaults that have left swathes of uncompleted housing projects in their wake.
June data on Monday showed the largest monthly slump in property sales this year and with fresh defaults – even at state-backed builders – more pressure is building on the sector.
The trustee for state-backed developer Greenland Holdings’ dollar bond said last week the developer has defaulted on the notes worth $432 million, while Sino-Ocean Group proposed this week to extend the repayment for a 2 billion yuan onshore bond due Aug 2.
Evergrande, the world’s most indebted property developer, on Monday posted a combined loss of $81 billion in 2021 and 2022 and a rise in total liabilities in its long overdue results.
(Additional reporting by Clare Jim in Hong KongEditing by Sonali Paul, Kim Coghill, Frances Kerry and Sharon Singleton)