Moody’s has downgraded the corporate family rating of Gemdale’s parent company, as the development firm struggles with a sales slowdown and “high uncertainty” that the firm will be able to increase its access to capital.
Gemdale, based in Shenzhen and with a U.S. unit based in Pasadena, is beset with liquidity issues, the ratings agency said in a release on Monday. Moody’s downgraded its rating for Gemdale to Ba3 from Ba2 and its bond ratings to B1 from Ba3.
Issues hampering Gemdale’s ability to increase its cash bucket “will worsen amid weakening contracted sales and its still-constrained funding access to debt capital markets,” Moody’s said.
Moody’s did not mention Gemdale’s U.S. subsidiary, which has developed apartment complexes in New York, Los Angeles and the San Francisco Bay market.
But its parent is not immune from the distress roiling China’s property markets — more than 50 developers in China have defaulted or stopped making payments on bonds. Many have left huge projects unfinished, unable to come up with the cash to finish construction.
And the troubles have already spilled over into the U.S. Greenland USA, a developer partly owned by the Shanghai government, sold one of its trophy towers in Downtown L.A. for a roughly $200 million loss last year. Oceanwide, another Chinese developer, has defaulted on loans tied to its unfinished project in L.A. and a supertall site in Manhattan.
Earlier this month, Evergrande, one of China’s largest developers, filed for Chapter 15 bankruptcy protection in the U.S., which protects foreign companies undergoing restructurings from creditors that could look to sue them in U.S. courts.
“Recent credit distress of certain Chinese developers could further dampen homebuyers’ confidence over the sector, which could in turn pressure Gemdale’s sales and cash flow over the next six to 12 months,” Moody’s said in its release.
Through July of this year, Gemdale’s contracted sales dropped 19 percent compared to the same seven-month period last year. And though Gemdale has enough cash to make debt payments, it has a heavy debt burden coming due through the end of 2024.
“The company’s slow progress in raising new funds will expose it to high refinancing uncertainty given the volatile funding environment,” Moody’s added.
Gemdale has a number of developments in the U.S. underway.
In New York, Gemdale is moving forward with its plan to build a 60-story residential tower at 45 Broad Street. In Northern California, the firm is building a 189-unit project in the East Bay suburb of Pleasant Hill.