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Research Report

16/04/2020 14:58

Moody's changes outlook on China property sector to negative

[ET Net News Agency, 16 April 2020] Moody's Investors Service has changed its outlook
for China's property sector to negative, as coronavirus-related disruptions and slowing
economic growth are weighing on property demand and inventory levels, while offshore
funding conditions will remain uncertain.
"We expect a 5%-10% year-on-year drop in nationwide property sales this year while
inventory levels will remain high. But the rated developers should still outperform
nationwide sales growth and are generally well-positioned to withstand the weakened
business conditions," said Celine Yang, a Moody's Assistant Vice President and Analyst.
Moody's expects that property sales will increase gradually through 2020 but will still
be lower than in 2019 with weak demand, and inventory levels will decrease but stay high
amid sluggish sales.
"Meanwhile, market turbulence tied to the coronavirus outbreak is increasing risk
aversion among investors and curtailing access to offshore funding, raising refinancing
risk for some developers with weak liquidity and credit quality," said Josephine Ho, a
Moody's Vice President and Senior Analyst.
But Moody's expects most rated high-yield developers will be able to address their $92
billion in onshore and offshore bonds maturing through April 2021, including puts. Most
developers have pre-funded a large portion of their offshore maturities. They should also
retain their onshore funding access and ability to refinance the onshore maturities,
given the broadly stable onshore funding conditions.
Nevertheless, four developers accounting for 5% (US$4.2 billion) of the maturities will
face higher refinancing risk.
China's property sector consists of thousands of developers, many of which are small,
with the 70 developers that Moody's rates among the country's largest. Amid the
challenging operating environment, Moody's expects the rated developers will continue to
gain market share as small and liquidity strained developers reduce their operations or
sell assets to larger companies.
Industry outlooks reflect Moody's view of fundamental business conditions for the
industry over the outlook period. Most (78%) of the rated developers had stable rating
outlooks as of 9 April 2020, and Moody's expects most to have stable outlooks for the
remainder of 2020. However, negative rating actions are more likely than positive ones,
given the difficult operating conditions. (KL)

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