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Chinese developer Longfor’s bonds sink deeper into junk territory as home sales sputter

Downgrade comes as developers continue to struggle with lacklustre buyer sentiment despite recent support measures

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Longfor Group’s contracted sales could decline a further 13 per cent this year, S&P Ratings said. Photo: Shutterstock
Yuke Xiein Beijing
Beijing-based Longfor Group is the latest firm to see its bonds downgraded further into junk territory, as weakening sales plague China’s beleaguered property developers despite the central government’s recent support measures to revive confidence.

S&P Global Ratings on Wednesday downgraded Longfor’s long-term issuer credit rating to BB from BB+ and its senior unsecured notes to BB- from BB, citing concerns that the company’s contracted sales could remain under pressure through next year due to a further depletion of saleable resources.

The company’s contracted sales could decline a further 13 per cent this year to 89 billion yuan (US$12.3 billion), the ratings agency said. Longfor’s gross profit margin from property development was expected to remain suppressed at 5 to 6 per cent, down from 11 per cent in 2023, as its focus on clearing inventory continued to weigh on profitability, S&P said.

“While we believe the company will be able to reduce adjusted debt of about 10 billion yuan each year in 2025 [and] 2026 using its growing rental and service income, weakness in property development will partially offset this,” wrote S&P analysts Wilson Ling and Edward Chan.

The downgrade comes as China’s developers continue to struggle with lacklustre sentiment among homebuyers. The property market crisis is now in its fourth year after Beijing introduced measures in late 2020 to deleverage developers and deflate a housing bubble.
Country Garden, once China’s largest home builder by sales, recorded a 38 per cent year-on-year decline in contracted sales in February, after Longfor reported a 36 per cent drop in January. In 2024, the total value of new home sales in China dropped to 9.7 trillion yuan, down 43.6 per cent from 2019.
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