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Research Report

07/05/2020 17:35

Rated Chinese developers' credit quality largely stable

[ET Net News Agency, 7 May 2020] Moody's Investors Service says in a new report that
the majority of its rated Chinese property developers (47/69) will see little change in
their credit metrics in 2020 amid overall challenging operating conditions, although some
improvement is likely from 2021.
"The weighted average debt leverage for rated developers will remain steady at around
65% in 2020 on slowing revenue and debt growth, which effectively offset each other, and
then improve to around 70% in 2021 on increasing revenue," said Josephine Ho, a Moody's
Vice President and Senior Analyst.
"While revenue growth will be limited this year as the coronavirus outbreak will delay
the completion and delivery of some projects, debt growth will also slow as most
developers are scaling back land acquisitions given the slowdown in contracted sales,"
added Ho.
Moreover, developers' weighted average gross margin will contract to 29% in 2020 and
2021 from 31% in 2019, because of rising land costs and property price controls by the
governments. This margin contraction will constrain improvement in developers' interest
coverage, with their weighted average EBIT/interest ratio staying largely flat at 3.2x in
2020 and inching up to around 3.4x in 2021 as EBIT increases.
Although developers have high refinancing needs through 2021, most have adequate
liquidity - with their weighted average cash/short-term debt ratio staying at a healthy
1.4x at the end of 2019 - and many have pre-funded their offshore bond maturities. (KL)

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