Evergrande Group. Photo: VCG

Chinese property developer Evergrande said on Monday that the move by S&P Global to cut the outlook of the company is "regrettable and incomprehensible", adding that overseas short selling institutions have repeatedly inflated expectations and maliciously bet on a short squeeze of Evergrande's stock, causing extreme panic in the capital market.

The outlook cut by S&P marked the third downgrade by international rating institutions for Evergrande and its subsidiaries in a month after Fitch Ratings and Moody's published their reports on late June.

According to a spokesman from Evergrande, the company's business indicators have reached a record high since it fully implemented the new strategy in March last year.

In 2020, Evergrande achieved sales of 723.2 billion yuan ($111.6 billion) and in the first half of this year sales reached 356.79 billion yuan, Evergrande's spokesperson told media on Monday.

At the same time, since March last year, Evergrande has repaid capital and interest of seven overseas bonds with its own funds, totaling about $10.6 billion. As of June 30,, Evergrande's interest-bearing liabilities dropped by about $300 billion compared with the peak in 2020.

"Overseas short-selling institutions repeatedly and maliciously cut short Evergrande's shares causing great panic in the capital market," said Evergrande's spokesperson.

On September 24 last year, short sellers maliciously bet on a short squeeze of Evergrande's shares, with the amount of short selling reaching more than 130 times than the usual amount. Since the end of May this year, a foreign media outlet has written 41 articles that discredit Evergrande and create false expectations, the spokesperson mentioned.

S&P Global on Monday downgraded Evergrande and its subsidiaries to B- from B+ for "weakening funding access", and its outlook was lowered from stable to negative. Evergrande's rating was revised from negative to stable by S&P in April, with a B+ rating affirmed.

According to the commentary released by Christopher Lee, analyst of S&P Global, Evergrande may face a tougher refinancing environment following allegations of fraud by the US-based investment research firm.

"Evergrande's corporate governance assessment could deteriorate if the company continues to materially invest in non-core businesses and pursues a high-growth strategy," Lee said.

Fitch Ratings also said that the downgrade reflects ongoing pressure for Evergrande to downsize its business and reduce total debt. The negative outlook reflects Evergrande's weakened access to debt capital markets and heavy reliance on trust loans.

"The downgrade reflects Evergrande's weakened funding access and reduced liquidity buffer given its large debt maturities in the coming 12-18 months amid the tight credit environment in China and volatility in the capital markets," according to Cedric Lai, a Moody's Vice President and Senior Analyst.

Although Evergrande has been reducing its debt to improve its financial stability, the company still faces sizeable portion of maturing debt and bonds over the next 12-18 months, according to Moody's.