Hong Kong, April 29, 2016 -- Moody's Investors Service says 23 rated Chinese property developers,
or 46% of the rated portfolio, had negative rating outlooks
or had their ratings on review for downgrade as of 25 April 2016,
up from around 42% as of 29 March 2016.
"The proportion of our rated developers with negative outlooks or
under review for downgrade hit 46% as of 25 April and is the highest
level since 2012," says Kaven Tsang, a Moody's Vice
President and Senior Credit Officer.
The negative bias of the rated portfolio and the recent rating actions
mainly reflect our concerns over the weakened financial and/or liquidity
positions of the companies against slowing contracted sales growth,
continued margin pressures in the sector, and increased risk appetite
of certain developers.
"We expect the credit profiles of many of our rated developers will
remain weak in 2016, given that their margin and EBIT/interest coverage
will stay at low levels while their leverage will remain high, against
slowing growth in contracted sales," adds Tsang.
In April, Moody's also changed the outlook of two property
developers to negative from stable and downgraded one company.
Tsang was speaking on the release of the latest publication of "China
Property Focus".
The report states that the year-on-year growth in nationwide
home sales will slow in 2016, from 16.6% in 2015 and
28.4% for the 12 months ended March 2016.
Moody's believes the Chinese government's recent measures
to limit house price increases in some first-tier and strong second-tier
cities will likely result in moderate contracted sales and property price
growth in these cities.
The expected slowdown in sales growth for the rest of 2016 will also be
driven by the high base effect in 2H 2015 and the impact of the policy
stimulus, implemented since 2H 2014, gradually becoming less
pronounced.
Moody's further notes that residential home prices for China's
70 major cities continued their rising trend in March 2016.
First-tier cities continued to see strong price growth.
For the third consecutive month, all four first-tier cities
posted double digit year-on-year price growth.
In addition, average property prices in second-tier cities
rose for a fourth consecutive month in March, recording 3.6%
year-on-year growth, compared to 2.3%
in February.
In particular, Wuhan, Nanjing, Hangzhou, Hefei
and Xiamen reported strong year-on-year price growth in
March.
Robust price growth in Shenzhen, Shanghai, Nanjing and Wuhan
triggered regulatory tightening in their residential property markets
in late March 2016.
Moody's believes further policy fine-tuning will continue
in other cities with strong price growth. Such measures will lead
to moderate contracted sales and property price growth.
However, Moody's expects policies will remain supportive in
lower-tier cities, where property prices remain sluggish.
The April edition of China Property Focus features the following articles:
• Sales Growth Will Moderate for the Rest of 2016
• Strong Price Growth in Major Cities Invited Regulatory Tightening
• Rated Developers' 2015 Results Indicate Credit Quality Will
Remain Weak in 2016
• Liquidity Index Improved Slightly in March 2016
• Two Outlook Changes to Negative from Stable and One Downgrade in
April
• Covenant Trends
The reports are available to subscribers here:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_189266
The report may also be found through this link to Moody's topic
page titled China — Reform and Rebalancing:
http://www.moodys.com/chinarebalancing. The
topic page provides subscribers with a centralized source for Moody's
research related to key credit issues in China, as the country's
rebalancing story unfolds.
Recent Moody's publications relating to China Reform and Rebalancing include:
• Chinese Diversified Technology Sector: Resilient Amid China's
Economic Rebalancing
• Chinese Banks: 2015 Results Show Continued Pressure on Asset
Quality and Profitability
• Regional and Local Governments -- China: Assessing
the Standalone Credit Profiles of Lower-Tier Chinese RLGs
• Oil and Gas -- China: National Oil Companies'
Aa3 Ratings Confirmation Reflects Strong Government Support and Financial
Flexibility
• Auto ABS -- China: Answers to Frequently Asked
Questions About Performance
• Measures to Cool China's Hot Property Markets Are Credit Negative
for Developers
• Chinese Overcapacity Sectors: Financial Pressure Tests Implicit
Local Government Support
• Property -- China: Developers Face Credit Negative
Effects from Measures to Dampen Price Surge in Shanghai and Shenzhen
• China Property Focus -- March 2016
• Automakers -- China: Sales Growth to Accelerate
in 2016 with Vehicle-Tax Cut but Slow in 2017
These reports are available at http://www.moodys.com/chinarebalancing.
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This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Kaven Tsang
VP - Senior Credit Officer
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.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
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China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
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Moody's: Proportion of rated Chinese developers with negative outlooks highest since 2012