Chinese property developers are in the doldrums: sales are slowing amid high inventory, borrowing costs and refinancing risks are rising, and intensifying competition may lead to a price war. These are just a few of the findings in Standard & Poor’s Ratings Services’ latest report on the sector, “The Credit Overhang: Chinese Developers With Large Exposure To Trust Loans And Overseas Debt Are On Shaky Ground”. A key conclusion is that sales prospects are likely to remain muted and that financially weak property developers in China are likely to face a test of their survival this year.
“Those companies with large maturing debts and refinancing risks on their offshore debt and trust loans will have to push property sales by cutting prices aggressively,” the report says, forecasting that average selling prices may drop by 10% in 2012 due to rising inventory and liquidity pressure. Among Standard & Poor’s 30 rated property developers, debt due within 12 months rose 57% to Chinese renminbi (RMB) 156 billion as of Dec. 31, 2011, from the year before. At the same time, cash reserves declined by 12% to RMB176 billion as developers had to meet obligations. What’s more, about 42% of the debts maturing this year are offshore bonds, offshore bank loans, and onshore trust loans, which some developers are finding difficulty refinancing.
To see the report, “The Credit Overhang: Chinese Developers With Large Exposure To Trust Loans And Overseas Debt Are On Shaky Ground”, click here. The report is part of “The Credit Overhang” series of Standard & Poor’s reports that comment on the competing forces that may influence the global corporate credit landscape.