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Friday 21 November 2008
Moody’s Sees Outlook Bleak for China’s Developers
The outlook for the mainland’s property developers over the next 12 to 18 months is negative, as they face rising operating uncertainties, a tight credit environment and “high regulatory risk”, according to ratings agency Moody’s Investors Service.
The outlook for the mainland’s property developers over the next 12 to 18 months is negative, as they face rising operating uncertainties, a tight credit environment and “high regulatory risk”, according to ratings agency Moody’s Investors Service.
In a report on the sector released yesterday, Moody’s criticised the aggressive expansion by some developers “at an inopportune period, or when revenues are no longer keeping pace with previous, overly optimistic projections” and warned that strict financial discipline was now required to avoid further credit downgrades.
“Contractions in sales volumes, price declines and land purchases in the first half of the year have caused balance-sheet liquidity and financial profiles to deteriorate to such an extent that we have had to take various negative rating actions over the past six months,” said Kaven Tsang, the report’s lead author.
Since its last outlook report in April, Moody’s said it had downgraded the credit ratings of five developers - Greentown China Holdings, Hopson Development Holdings, Coastal Greentown, SRE Group and Neo-China Land Group - and put China Properties Group and Shimao Property Holdings on review for possible downgrades.
Capital markets, bank loans and sales proceeds are the major sources of funds for property developers, it notes, and many have taken opportunities in the past two years to raise ample funds from overseas equity and bond markets to finance expansion, particularly by acquiring land.
But Moody’s said the situation changed late last year when the offshore market for funds virtually shut down for the sector.
Many developers revised down their sales targets in view of the falling transaction volumes and property prices, which further hit their cash flow, it added. Total cash balances for all 13 developers rated fell 23 per cent in the first half of this year.
More unfavourable news included reduced opportunities for asset sales by mainland developers as the worsening international credit crisis has interrupted buying from overseas and Hong Kong property firms.
And the worst was yet to come, Moody’s said, as an expected rise in the supply of new housing would further depress the market. Against this backdrop, Moody’s said financial discipline would remain the key for developers to withstand the challenging market environment.
However, taking advantage of the slowing market, Hong Kong developer Hang Lung Properties said it had a good prospect of reaching its target of acquiring land for 18 commercial projects on the mainland by the end of next year.
“I wouldn’t dare to say that if not for the financial crisis. But now the market is weakening, and it actually provides us with a good opportunity,” chairman Ronnie Chan Chichung told reporters on the sidelines of an industry forum.
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Moody’s Sees Outlook Bleak for China’s Developers
Peggy Sito
20 November 2008
The outlook for the mainland’s property developers over the next 12 to 18 months is negative, as they face rising operating uncertainties, a tight credit environment and “high regulatory risk”, according to ratings agency Moody’s Investors Service.
In a report on the sector released yesterday, Moody’s criticised the aggressive expansion by some developers “at an inopportune period, or when revenues are no longer keeping pace with previous, overly optimistic projections” and warned that strict financial discipline was now required to avoid further credit downgrades.
“Contractions in sales volumes, price declines and land purchases in the first half of the year have caused balance-sheet liquidity and financial profiles to deteriorate to such an extent that we have had to take various negative rating actions over the past six months,” said Kaven Tsang, the report’s lead author.
Since its last outlook report in April, Moody’s said it had downgraded the credit ratings of five developers - Greentown China Holdings, Hopson Development Holdings, Coastal Greentown, SRE Group and Neo-China Land Group - and put China Properties Group and Shimao Property Holdings on review for possible downgrades.
Capital markets, bank loans and sales proceeds are the major sources of funds for property developers, it notes, and many have taken opportunities in the past two years to raise ample funds from overseas equity and bond markets to finance expansion, particularly by acquiring land.
But Moody’s said the situation changed late last year when the offshore market for funds virtually shut down for the sector.
Many developers revised down their sales targets in view of the falling transaction volumes and property prices, which further hit their cash flow, it added. Total cash balances for all 13 developers rated fell 23 per cent in the first half of this year.
More unfavourable news included reduced opportunities for asset sales by mainland developers as the worsening international credit crisis has interrupted buying from overseas and Hong Kong property firms.
And the worst was yet to come, Moody’s said, as an expected rise in the supply of new housing would further depress the market. Against this backdrop, Moody’s said financial discipline would remain the key for developers to withstand the challenging market environment.
However, taking advantage of the slowing market, Hong Kong developer Hang Lung Properties said it had a good prospect of reaching its target of acquiring land for 18 commercial projects on the mainland by the end of next year.
“I wouldn’t dare to say that if not for the financial crisis. But now the market is weakening, and it actually provides us with a good opportunity,” chairman Ronnie Chan Chichung told reporters on the sidelines of an industry forum.
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