[ET Net News Agency, 8 October 2018] Moody's Investors Service said that the credit
metrics of Moody's-rated property developers in China will improve overall in 2019.
Moody's analysis comes after the companies posted broadly stable results for the six
months to 30 June 2018.
"In particular, we expect that mid- and large-sized developers that can manage growth
while showing strong execution and financial discipline will withstand the tough operating
conditions over the next 6-12 months," said Kaven Tsang, a Moody's Vice President and
Senior Credit Officer.
"However, the credit quality of small developers with low competitive advantages will
weaken over the same period, because tight credit conditions in China will reduce their
sales levels and access to funding, and materially increase funding costs," said Celine
Yang, a Moody's Assistant Vice President and Analyst.
Moody's conclusions are contained in its just-released report titled "Property - China:
Rated developers' credit metrics to improve in 2019 despite margin squeeze," and is
co-authored by Tsang and Yang.
In the report, Moody's analyzed the 1H 2018 results of 47 rated developers that
announced their interim results over the last 2-3 months.
Moody's expects that the weighted-average revenue/adjusted debt for these 47 developers
will rise to around 75% by the end of 2019 from 58% at 30 June 2018, because revenue
growth - a result of the strong contacted sales in the last two years - will outweigh debt
growth. The deleveraging trend shown by the three large scale B-rated developers will also
contribute to the improvement.
Meanwhile, the developers' weighted-average EBIT/interest will rise mildly to 3.6x for
the 12 months to the end of 2019 from 3.3x for the 12 months to 30 June 2018.
And, the developers' weighted-average gross profit margin will dip to 30%-32% for the 12
months to the end of 2019 from 32.9% for the 12 months to 30 June 2018, with the latter
result representing a peak over the last 3-4 years. The weaker margin in 2019 will be
because of price caps on property sales in many cities and an increase in land costs.
Moody's further says that high refinancing needs will continue to pressure the liquidity
of the rated developers. Specifically, low-rated developers (with ratings at B3 or below)
will face high refinancing risks for maturing debt over the next 6-12 months, because of
weak sales and tight credit conditions. Overall, the developers' weighted-average
cash/short-term debt was largely stable registering 1.47x at 30 June 2018 from 1.44x at
the end of 2017. (KL)