27 Mar 2014
Moody's: China property developers' liquidity remains stable
FXStreet (Bali) - According to Moody's Rating Agency, China property developers' liquidity remains stable.
Announcement
"Moody's Investors Service says that the rated Chinese property developers will achieve positive but smaller growth in sales revenues over the next 12 months, while maintaining adequate liquidity."
"But the recent bankruptcy of Zhejiang Xingrun Real Estate Co. (unrated) could prompt banks to become more cautious in managing their exposure to the property sector."
"The bankruptcy appears to be an isolated incident, but it highlights the vulnerability of small, highly levered developers with weak sales execution abilities and high refinancing needs," says Kaven Tsang, a Moody's Vice President and Senior Analyst.
Tsang was speaking on the release of Moody's latest monthly China Property Focus.
Zhejiang Xingrun Real Estate, a real estate developer based in Ningbo, Zhejiang Province, bankrupted earlier in March when it was unable to service more than RMB3.5 billion in outstanding debt.
Following the bankruptcy, Moody's believes financiers and investors will become more selective and favor borrowers with relatively strong credit quality, thereby further pressuring the liquidity of financially weak developers.
Nevertheless, Moody's expects the impact on its rated developers will be manageable, as most have multiple funding channels, sound liquidity buffers, and geographic diversification.
"Our liquidity index for Chinese property developers -- which measures the number of rated developers that had inadequate liquidity or were placed in the SGL-4 category -- remained stable at 18.4% in February 2014, the same level as at end-December 2013," says Tsang.
In total, the liquidity of nine rated developers -- mostly rated B2 or below -- was weak in February 2014.
"Slow sales and/or heavy refinancing requirements are the main drivers stressing the low-rated developers' liquidity levels, while their ability to access the offshore bond market is constrained by their weak credit profile," adds Tsang.
Meanwhile, the offshore debt capital markets continued their strong momentum at the beginning of the year as developers lock in interest rates, extend debt maturities and raise fund for land payments.
Moody's also expects growth in property prices across China's 70 major cities to moderate over the next 12 months, as a result of the high base effect of 2013, tighter liquidity, and weakened market sentiment in the China property market.
The number of cities recording strong price gains of more than 10% year-on-year decreased to 14 in February 2014, from a record high of 28 in December 2013.
Announcement
"Moody's Investors Service says that the rated Chinese property developers will achieve positive but smaller growth in sales revenues over the next 12 months, while maintaining adequate liquidity."
"But the recent bankruptcy of Zhejiang Xingrun Real Estate Co. (unrated) could prompt banks to become more cautious in managing their exposure to the property sector."
"The bankruptcy appears to be an isolated incident, but it highlights the vulnerability of small, highly levered developers with weak sales execution abilities and high refinancing needs," says Kaven Tsang, a Moody's Vice President and Senior Analyst.
Tsang was speaking on the release of Moody's latest monthly China Property Focus.
Zhejiang Xingrun Real Estate, a real estate developer based in Ningbo, Zhejiang Province, bankrupted earlier in March when it was unable to service more than RMB3.5 billion in outstanding debt.
Following the bankruptcy, Moody's believes financiers and investors will become more selective and favor borrowers with relatively strong credit quality, thereby further pressuring the liquidity of financially weak developers.
Nevertheless, Moody's expects the impact on its rated developers will be manageable, as most have multiple funding channels, sound liquidity buffers, and geographic diversification.
"Our liquidity index for Chinese property developers -- which measures the number of rated developers that had inadequate liquidity or were placed in the SGL-4 category -- remained stable at 18.4% in February 2014, the same level as at end-December 2013," says Tsang.
In total, the liquidity of nine rated developers -- mostly rated B2 or below -- was weak in February 2014.
"Slow sales and/or heavy refinancing requirements are the main drivers stressing the low-rated developers' liquidity levels, while their ability to access the offshore bond market is constrained by their weak credit profile," adds Tsang.
Meanwhile, the offshore debt capital markets continued their strong momentum at the beginning of the year as developers lock in interest rates, extend debt maturities and raise fund for land payments.
Moody's also expects growth in property prices across China's 70 major cities to moderate over the next 12 months, as a result of the high base effect of 2013, tighter liquidity, and weakened market sentiment in the China property market.
The number of cities recording strong price gains of more than 10% year-on-year decreased to 14 in February 2014, from a record high of 28 in December 2013.