Hong Kong, May 24, 2012 -- Moody's Investors Service says that the liquidity profiles of Chinese
property developers have deteriorated since our last report published
in December 2011.
"The liquidity positions of our 29 rated Chinese property developers
are worsening, with our updated stress test now showing 11 issuers
with weak liquidity versus just four in December 2011," says
Peter Choy, a Moody's Associate Managing Director.
"The deterioration stems specifically from higher levels of short-term
debt and lower-than-expected cash balances for end-2011
against the backdrop of slowing sales and rising inventories,"
says Choy.
Choy was speaking on the release of a new Moody's report entitled,
Declining Liquidity for Chinese Property Developers Weigh on the Sector.
The report details the results of a stress test conducted on 16 May 2012,
and which was based on our forecast of the developers' liquidity
positions. The report was authored by Choy and Kaven Tsang,
a Moody's Assistant Vice President -- Analyst.
According to the stress test, three factors are behind the worsening
in liquidity positions and the resultant difficulties that developers
now face in refinancing: [1] the rise in short-term
debt; [2] the fall in the amount of cash available to cover
the short-term debt; and [3] constraints on offshore
and onshore funding, including the regulatory curbs on trust financing.
Rising refinancing risk is greatest for lower-rated developers,
although there are differences in the level of risk for individual issuers
and across rating categories.
The report says that clearest divergence occurs between the prospects
for developers rated single B or lower and for developers rated Ba or
higher. Some of the latter have backgrounds as state-owned-enterprises
(SOEs).
With the total amount of short-term debt due for repayment this
year by Moody's 29 rated developers, the report puts the figure
at RMB159 billion, up 23% from what a previous stress test
showed in December 2011. The total breaks down into RMB128 billion
of onshore debt and RMB31 billion of offshore debt.
The report also says that the negative outlook Moody's had first
assigned to China's property sector in April 2011 remains in effect
because of an anticipated continued weakening in the sector's fundamentals
over the next 12 months.
Such a situation will further pressure cash flows and balance-sheet
liquidity. Meanwhile, with onshore and offshore credit to
the sector still tight, Moody's does not therefore see any
likelihood of improvement over the near term.
Moody's research subscribers can access this report at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_142191
***
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Peter Choy
Associate Managing Director
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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China (Hong Kong S.A.R.)
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Kaven Tsang
Asst Vice President - Analyst
Corporate Finance Group
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Releasing Office:
Moody's Investors Service Hong Kong Ltd.
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Moody's: Liquidity for Chinese property developers falls further