The rating agency Standard & Poor’s downgraded the credit rating of the Shanghai-based real estate developer Greenland from B to CC after they asked for a one-year extension for a $488 million loan that comes due on the 25th of June. According to S&P’s, they consider the move a “distressed maturity extension,” and that if completed it would be considered “as tantamount to a default.”
Greenland is the latest of a number of Chinese developers that have asked for extensions on their loans, the first of which was Evergrande in September of last year. Since then, other developers have had troubles, such as Yuzhou Group in March and Sunac earlier this month. As more developers and property companies in China come into financial trouble there is a growing fear that the difficulties in the Chinese property sector are systemic.
The Chinese government is a partial owner of many of these property firms, which could lead to a governmental bailout if they face insolvency. So far there have been no comments from party officials on if these firms will be saved from bankruptcy but the recent move by the Chinese central bank to lower interest rates, even as the rest of the world is raising their rates, is telling. Lower interest rates help spur property sales and could relieve some of the pressure that Chinese developers are feeling, but could also have a disastrous effect on the economy if inflation becomes a problem.
