[ET Net News Agency, 28 September 2020] Moody's Investors Service said in a new report
that China's property developers will see their debt leverage and interest coverage
improve over the coming months as revenue growth outpaces debt growth.
"Solid contracted sales over the past 2-3 years will support revenue growth for the
developers we rate in 2020-21. Meanwhile, debt growth will slow significantly from the
high level in 2019, as many developers plan to slow down their debt-funded expansion as
regulators tighten controls on their access to debt funding," said Danny Chan, a Moody's
Assistant Vice President and Analyst.
Developers' weighted average revenue/adjusted debt will improve to 66%-72% in 2020-21
from 62% in the 12 months ended 30 June 2020 and 63% in full-year 2019. This improvement
comes as developers recognize revenue for the strong contracted sales in the past 2-3
years while controlling debt growth.
However, their gross profit margins are expected to decline, amid rising unit land costs
and property price controls by local governments. The weighted average margin will
contract to around 28% in 2020 and 2021 from 29% in the 12 months ended 30 June 2020 and
31% in 2019. The contraction will be largest for Baa-rated developers as they will deliver
fewer high-margin projects than in 2018-2019.
While liquidity declined slightly as of 30 June 2020 as a number of short-term
maturities came due, Moody's expects most rated developers should be able to refinance or
repay their upcoming maturities as capital markets have stabilized compared to the first
quarter of 2020.
Additionally, developers still have access to onshore and offshore capital markets,
although they will be subject to tighter scrutiny and will use their debt proceeds mainly
for refinancing. Low-rated developers (B3 or lower) will face higher refinancing risks
than their peers. (KL)