China real estate troubles sent debt indicator to record high

BEIJING — A measure of risk levels for debt in Asia has surpassed its 2009 financial crisis high, thanks to a surge in downgrades of Chinese property developers since late last year, ratings agency Moody’s said Wednesday.

Among the relatively risky category of Asian high-yield companies outside Japan that are covered by Moody’s, the share with the most speculative ratings of “B3 negative” or lower has nearly doubled from last year — to a record high of 30.5% as of May, the firm said.

That’s higher than the 27.3% share reached in May 2009, during the global financial crisis, the report said.
That year, only three Chinese property developers were part of that risky share, versus 24 in May 2022, Moody’s said.

It’s not clear whether the new record indicates a financial crisis is imminent.

High-yield bonds are already riskier than products deemed “investment grade,” and offer higher return but greater risk. “B3 negative” is the lowest rating for a category that denotes assets that are “speculative and are subject to high credit risk” in Moody’s system.

Some Chinese developers’ bonds have received more than one downgrade, the report noted. Names on the Moody’s “B3 negative” or lower list include Evergrande, Greenland, Agile Group, Sunac, Logan, Kaisa and R&F. Evergrande entered the list in August, while several were added only in May.

“Our downgrade is a reflection of the current very tough operating environment for China property developers combined with a tight funding environment for all of them,” Kelly Chen, vice president and senior analyst at Moody’s Investors Service, said in a phone interview Thursday.

“We’ve all seen contracted sales have been quite weak, and we haven’t seen very significant rebound responding to the supportive policies,” she said, noting the effect would likely be seen in the second half of the year.