China’s Huafa abandons domestic AAA rating amid Fitch downgrade, bond market jitters

Zhuhai Huafa Group, a state-owned enterprise in China, has voluntarily ended its relationship with a prominent domestic credit rating agency, resulting in the loss of its AAA rating after an international ratings agency downgraded the company. As the largest local government-owned enterprise in Zhuhai, Guangdong province, Huafa announced its decision to terminate its credit-rating mandate with China Lianhe Credit Rating based on its own needs and business conditions.

Lianhe, a leading domestic rating agency, similarly withdrew Huafa's issuer ratings along with 16 of its corporate bonds. A trader in the financial markets department of a state-owned bank explained that this move was a defensive one, as Lianhe could have potentially downgraded the firm. Prior to this, Lianhe had given Huafa a AAA rating and a separate AAA rating for one of its listed corporate bonds in June.

With its unaudited 2026 third-quarter report released on October 31, Huafa reported a pre-tax loss of 7.7 billion yuan, a 21 percent drop in revenue, and a debt-to-asset ratio exceeding 75 percent. While property development remains its core business, Huafa also has interests in technology, urban operations, and financial services.

The termination may prove to be the more advantageous outcome for China's bond market, according to Zhang Candong, an independent bond analyst in Shanghai. Fitch Ratings recently downgraded Huafa's issuer default rating from BBB to BB+ and cut its senior unsecured bonds by the same margin, with all ratings currently on negative watch.

This downgrade was due to a weaker assessment of both Zhuhai city's ability to support Huafa and the likelihood of such support being provided, as Zhuhai's general public budget revenue only accounted for about 8 percent of Huafa's total debt at the end of March.