Chinese developers’ ability to service debt the weakest in three years, says report

KUALA LUMPUR (Sept 4): Cash-to-short-term debt at more than 80 publicly traded China real estate companies were averaging 133% in the first half, the worst since 1H2015 and down from 297% a year earlier, according to a report by Bloomberg.

And almost a quarter of them have a ratio below 50%.

According to the same report, Chinese developers have been taking on the debt even though they have been enjoying good business.

“Firms have been selling more bonds in the domestic market -- and at the cheapest rates as investors shrug off default concerns. Those with dollar-denominated obligations, meanwhile, face higher borrowing costs as the US Federal Reserve continues on its tightening path,” wrote Bloomberg.

“The biggest alarm is the refinancing pressure. Although developers try to hoard cash, their buffers are draining,” Christopher Yip, a real estate analyst at S&P Global Ratings, told Bloomberg.

Bloomberg also wrote that making things even tougher is Beijing’s efforts to keep down home prices, “which is making it harder for firms to generate swift cash from sales”.

Bloomberg Intelligence property analyst Kristy Hung said the smaller firms will most probably suffer the most.

Their ability to hang on to landbank is being threatened by larger companies with more monies and “consolidation is already starting to occur”.

The biggest 30 developers currently have a market share that’s close to 50% -- it was 29% just back in 2016.