Thursday, December 15, 2011

Moody's maintains negative outlook on Chinese property developers

KUALA LUMPUR (Dec 15): ''Moody's Investors Service has maintained its negative outlook on Chinese property developers as the sector will continue to face a challenging operating environment over the next 12-18 months.

In a report entitled "Chinese Property Developers: Slow Sales and Tight Credit to Continue", Kaven Tsang, a Moody's assistant vice president and analyst said the challenges would be marked by slowing sales, tight bank credit, and downward pressure on prices and profit margins.

All these factors could pressure the credit and liquidity profiles of developers, said Tsang.

He said Moody's expects the government to continue its attempts to curb property prices.

'Though transaction volumes in major cities, such as Beijing and Shanghai, have materially declined in 2011, price declines have only been more obvious in the fourth quarter. Moreover, property prices have not materially declined in most second tier cities.

"This lag could deter any near-term relaxation of regulatory measures and tight bank credit to the sector,' he said.

Tsang co-authored the report with Peter Choy, a Moody's associate managing director.

He said that despite the challenges, Moody's believed rated developers were better positioned than their smaller unrated peers because of their more diversified operations and better access to both onshore and offshore funding.

These strengths will provide them with more flexibility to counter the challenges of slowing sales and tight credit, he said.

'In particular, many of the rated developers experienced the last down-cycle in 2008, and, therefore, have taken a more cautious approach in expanding over the last two years.

'They also have ample cash on hand to preserve balance-sheet liquidity,' he said.

The report said that as of September, with a total of RMB176 billion (US$27 billion) of cash, the liquidity of rated developers was stronger than in 2008 and could cover their short-term debt of RMB128 billion (US$20 billion).

Moody's rates 29 developers in China and their ratings range from Baa2 to Caa1.


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