On the evening of the 26th, the credit rating of the convertible bonds of eight listed companies, including M&S Electronics, Fangyuan Shares, Suzhou Keda, D&O Home Collection Group, Jiangsu Huahong Technology, Guocheng Mining, Shanghai Hugong Electric Group, and OMH Science Group, were downgraded by rating agencies. Since this month, more than 20 A-share companies have announced a downgrade in credit rating of convertible bonds. Some convertible bonds face the risk of delisting of the underlying stock at RMB 1 or other risks, which further adds to the credit risk overflow.
June is the month when annual corporate credit ratings are most concentrated. More than 20 convertible bonds and the credit ratings of convertible bond issuers have been lowered this month. The main reasons for the rating downgrade include poor company operations, high debt pressure, regulatory violations, and high pledge ratios. According to regulatory requirements, the rating adjustment of the convertible bond issuer is expected to be completed by the end of July.
Last night, as of press time, eight A-share companies, including Chengdu M&S Electronics (688311.SH), Fangyuan Stock (688148.SH), Suzhou Keda (603660.SH), D&O Home Collection Group (002798.SZ), Jiangsu Huahong Technology (002645.SZ), Guocheng Mining (000688.SZ), Shanghai Hugong Electric Group (603131.SH), and Omh Science Group (300486.SZ), issued convertible bond tracking rating reports for 2024, whose related credit ratings were downgraded by rating agencies.
Among them, the credit rating report issued by Oriental Jin Cheng International Credit Rating Co., Ltd. shows that in 2023, the revenue of D&O Home Collection Group decreased and the total profit was greatly lost; accounts receivable still faced certain impairment risks; the liquidity of assets was somewhat weakened; the company's one-year debt due was large and faced certain concentration redemption pressure, and the share pledge ratio of the controlling shareholder was high.
Under these multiple risks, Oriental Jin Cheng lowered the main credit rating of D&O Home Collection Group from A+ to A, and the rating outlook was stable; at the same time, the credit rating of "D&O Convertible Bonds" was also downgraded from A+ to A.
Chengdu M&S Electronics also had a similar situation. The credit rating agency Oriental Jin Cheng lowered the main credit rating of Chengdu M&S Electronics from AA- to A+, and the rating outlook was stable; at the same time, the credit rating of "Chengdu M&S Convertible Bonds" was also downgraded from AA- to A+.
Also released last night was Suzhou Keda, whose main credit rating was downgraded by China Securities Credit Rating Co., Ltd. from A+ to A, and the rating outlook remained negative; the rating result of "Keda Convertible Bonds" was also downgraded from A+ to A.
Companies with negative rating outlooks account for a relatively small proportion. China Securities Credit Rating Co., Ltd. downgraded the credit rating of Suzhou Keda mainly because Suzhou Keda's operating performance has continued to be in losses, and the revenue in the first quarter of 2024 dropped sharply, and the scale of the loss further expanded compared with the same period last year. Its capital strength continued to weaken, and the debt-to-asset ratio continued to rise. The market price of the company's common stocks was significantly lower than the bond conversion price of this period. If this period's bonds trigger the clause of redemption or cannot be converted into stocks upon maturity, the company will face a large concentration redemption pressure, and the company still has a large amount of provision for impairment losses, and there is still a certain risk of recovering accounts receivable and the decline of inventory.
Fangyuan Stock also received a two-level rating downgrade in the latest rating report issued by China Securities Credit Rating Co., Ltd. due to the uncertainty of future profitability. Its main credit rating was downgraded from A+ to A-, and the rating outlook was maintained as "stable"; the credit rating of "Fangyuan Convertible Bonds" was also downgraded from A+ to A-.
In addition to the above five companies, Taifook Securities downgraded the main credit rating of Jiangsu Huahong Technology from AA- to A+, and the rating outlook remained stable. The credit rating of "Huahong Convertible Bonds" was also downgraded from AA- to A+. The long-term credit rating of Guocheng Mining was downgraded by United Ratings from AA to AA-, and the credit rating of "Guocheng Convertible Bonds" was downgraded from AA to AA-. United Ratings also downgraded the main credit rating of Shanghai Hugong Electric Group from "A+" to "A", and the credit rating of "Hugong Convertible Bonds" was downgraded from "A+" to "A".
It is worth noting that some convertible bonds still face the risk of delisting of common stocks at 1 yuan, and credit risk is further superimposed, and market concerns are gradually spreading. Incomplete statistics show that as of the close of June 26th, the stock prices of Guanghui Convertible Bonds, Lingnan Convertible Bonds, and Dongshi Convertible Bonds have fallen below 1 yuan per share. Among them, the closing price of Guanghui AutomotiveServices Group (600297.SH) was 0.78 yuan/share; the closing price of Lingnan Eco&Culture-Tourism (002717.SZ) was 0.96 yuan/share; and the closing price of ST Dongshi was 0.94 yuan/share. In addition, the common stock prices of many convertible bonds such as Sanfang Convertible Bonds, China National Chemical Engineering CO.,LTD. Convertible Bonds 2, and Yingliu 19 Convertible Bonds are currently below 2 yuan per share.
At present, as of yesterday, more than 20 companies' convertible bond ratings, including Jiangsu Sanfame Polyester Material (600370.SH), Lingnan Eco&Culture-Tourism(000523.SZ), Shanying International Holdings(600567.SH), Shanghai Xuerong Bio-Technology(300511.SZ), etc., have been downgraded after the annual report was released. Some institutional analysts believe that based on historical data, this round of low-priced convertible bonds will see an increase in the number of A and below rating convertible bonds being downgraded.
Looking at past cases, the peak of announcement of convertible bond rating downgrades was at the end of June, and similar cases may be more concentrated this year. As for the future market, some institutions believe that the overall sentiment of the convertible bond market is pessimistic, but some signs of reaching the bottom may have already appeared.
The 'Working Guidelines for Securities Market Credit Rating Agencies' issued by the China Securities Regulatory Commission in October 2023 clearly stipulates that for rated securities with a maturity of more than one year, credit rating agencies should issue a regular tracking rating report at least once a year during the rated security's tenure, and disclose the report within three months after the rated security or its issuer's annual report is released. According to this regulation, the rating adjustment of convertible bond issuers is expected to be completed by the end of July.