Hong Kong, October 24, 2011 -- Moody's Investors Service says that most of its rated Chinese property
developers are well-positioned against the near-term challenges
posed by ongoing funding constraints and slowing sales.
"Our analysis shows that most of the rated developers demonstrate
robust liquidity profiles, even under conservative assumptions,
mostly due to sizable cash on hand, and which totaled RMB191 billion
(USD29.4 billion) as of June 2011," says Kaven Tsang,
a Moody's Assistant Vice President and Analyst.
"In Moody's base case scenario, 23 of the 29 rated developers
have enough cash and projected cash flow to cover more than 150%
of our projections for their cash outflows - interest, land
premium, and refinancing needs over the next 12 months,"
adds Tsang.
The conclusions are based on a forward-looking analysis conducted
by Moody's of the liquidity positions of its rated portfolio to
assess the abilities of the developers to withstand the challenges anticipated
in the next 12 months.
Tsang was speaking on the release of Moody's special comment on
the results of this analysis. The report was written by Tsang,
and other senior Moody's analysts, including Ken Chan,
Jonathan Lee, Jiming Zou and Peter Choy.
According to the report, only one rated issuer is considered weakly
positioned under Moody's base case scenario as its cash and projected
cash flow would not fully cover 100% of our projections for its
interest, land payments, and refinancing needs in the coming
12 months.
Meanwhile, 5 rated developers exhibit a modest level of coverage
as they can -- with the same resources -- cover 100%-150%
of such projected requirements.
In its base case analysis, Moody's assumed material falls
in sales volumes in first-tier cities, closed access to offshore
debt and equity markets, and an ability to roll over 75%
of onshore bank debt.
Additionally, Moody's ran a more stressed scenario with higher
refinancing pressure for onshore bank debt in the next 12 months.
Under this scenario, 20 of the 29 rated developers have 150%
coverage of their projected cash outflows for this period, 6 have
modest coverage and only 3 are weakly positioned.
Given that the majority of the rated developers maintained access to onshore
bank loans in 1H 2011 and during the last down-cycle in 2008,
Moody's believes that its assumptions are fairly conservative,
and accordingly provide good insight into the robust nature of most of
the developers' forward-looking liquidity positions.
At the same time, Moody's -- as indicated --
continues to see a challenging operating environment, including
a slowdown in cash flow from sales over the next 6-12 months,
due to regulations restricting property purchases and greater difficulty
in securing credit from onshore banks.
Moreover, access to alternative funding, such as offshore
debt and equity, is currently closed, and regulators are also
closely examining the investment inflows to the sector in the form of
trust loans.
Nevertheless, Moody's considers that the exposure of rated
property developers to trust loans is relatively low at below 10%
of their total debt, and the implications are therefore considered
manageable.
The report is entitled, "Liquidity Risks for Most Rated Chinese
Developers Are Manageable in the Next 12 Months". It can
be found at www.moodys.com
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Kaven Tsang
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
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Peter Choy
Senior Vice President
Corporate Finance Group
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Releasing Office:
Moody's Investors Service Hong Kong Ltd.
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Moody's: Near-term liquidity risks for Chinese property developers manageable