Country Garden, China's largest private developer in terms of sales last year, has amassed more than $150 billion in debt and said this month it had failed to make two bond payments, meaning it now risks a default.
The firm's cash flow woes have fuelled fears that the firm could collapse, which many warn could have catastrophic repercussions for the Chinese financial system and economy.
Ratings firm Fitch on Wednesday said it was downgrading subsidiary Country Garden Services, which is responsible for property management, to BB+ from BBB- and put it on a negative watch.
It said the company's "growth, brand reputation, profitability and funding access may be negatively affected by the heightened liquidity pressure" faced by the developer.
Country Garden is expected to publish its results for the first half of the year in the coming days and has said it expects a net loss of as much as 55 billion yuan ($7.5 billion).
Adding to the pressure on the firm, 31 billion yuan in bonds will expire in 2024, according to rating agency Moody's.
Housing reforms in China during the late 1990s unleashed a boom in the real estate sector, spurred by social norms that consider owning a property a prerequisite for marriage.
But the massive debt accrued by the industry's biggest players has been perceived by Beijing in recent years as an unacceptable risk for China's financial system and overall economic health.
To reduce the sector's indebtedness, authorities have gradually tightened conditions for developers' access to credit since 2020, drying up sources of financing for firms already in debt.
A wave of defaults followed -- notably that of Country Garden rival Evergrande, which had nearly $340 billion in debt and $2 billion in cash at the end of 2022.
In the face of a broader economic slowdown, Beijing has recently sought to bolster the property sector by cutting mortgage rates, slashing red tape and offering more loans to developers.
However, observers warn those measures have had little impact and officials need to do more.
Asia tracks Wall St surge as traders welcome US data, Nvidia results
Hong Kong (AFP) Aug 24, 2023 -
Asian markets rose again Thursday after soft US and European economic data soothed recent fears that central banks will hike rates further, while tech firms were given a boost by forecast-busting earnings from AI chip titan Nvidia.
Traders have spent most of August fretting that the Federal Reserve will be forced to tighten monetary policy further owing to a string of reports pointing to a resilient US economy and jobs market.
But news that the country's factory activity continued to shrink in August while the key services sector was weaker than predicted was seen as allowing policymakers to take a step back, with borrowing costs already at a two-decade high.
Expectations for jobs growth in August were also scaled back, providing some much-needed relief to investors, while US Treasury yields retreated from around 15-year highs.
The picture in the eurozone was equally poor, with the purchasing managers indexes for manufacturing and services both contracting.
"In terms of PMIs in the US and Europe, it's good news for the market because they are now expecting no more rate hikes in the future," said Grace Tam, at BNP Paribas Wealth Management, on Bloomberg Television.
The figures come as Fed chief Jerome Powell and European Central Bank head Christine Lagarde prepare to make speeches at a keenly followed annual gathering of central bankers and business leaders at Jackson Hole, Wyoming on Friday.
Redmond Wong, at Saxo, said: "This may be another reason for Powell to stay away from committing to further rate hikes but continue to highlight a data-dependent approach."
Krishna Guha, of Evercore ISI, added: "The recent surge in bond yields has pushed up mortgage and corporate borrowing rates, contributed to the fall in stock prices, and generated upward pressures on the dollar.
"The Fed will have to consider the tightening in financial conditions when setting rates in coming months, including the decision on whether to hike in September."
Wall Street's three main indexes soared, with the S&P 500 and Nasdaq up more than one percent.
The gains were supported by a rally across big-name tech firms including Amazon and Apple, which came ahead of the release of earnings from Nvidia that were tipped to beat the firm's forecasts.
And the Silicon Valley giant did not disappoint after the US close, reporting a mind-boggling 843 percent jump in net profit to $6.2 billion thanks to the growing demand for all things AI.
Shares of Nvidia surged more than eight percent in after-hours trading.
And the positive vibes filtered through to Asia, where Hong Kong led gainers by rising more than one percent, while Shanghai, Tokyo, Sydney, Seoul, Singapore, Manila and Jakarta also rose.
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