Weakening credit trends for China developers to stabilize

    Moody's Investors Service said that the 2013
financial results for its rated property developers in China showed weakening credit trends, but most have enough financial cushion to withstand challenging business conditions in 2014.
  Moody's rates 50 Chinese property developers and commented on the 2013 full-year financial results of 24 of the most representative developers.
  "Leverage was up, and interest coverage and margins were down in 2013 for the majority of the rated property developers," said Gerwin Ho, a Moody's Vice President and Senior Analyst.
  "However, the rated universe's revenue and EBITDA will increase materially in 2014 as companies recognize completed projects presold in 2013, when contracted sales growth was strong. This trend will provide a buffer against further weakening of certain financial ratios, such as EBITDA/interest ratios," Ho added.
  Moody's analysis of the Chinese property sector is contained in its just-released report, entitled "2013 Results Show Weakening Credit Trends for Developers; Trends Should Stabilize in 2014".
  Most of the rated developers recorded double-digit contracted sales growth last year. However, Moody's expects sales growth for Chinese property developers will moderate in 2014 from the unusually high levels seen in 2013.
  Moody's expects operating cash flow growth to slow due to ongoing construction spending to complete projects presold in 2013, while contracted sales growth is also slowing and banks are taking longer to approve mortgage applications.
  "Banks have become more selective following recent defaults in China, and we expect liquidity of developers with relatively weak credit quality to decline as a result," said Ho.