Fitch Predicts Liquidity Challenges For 12 China Developers

by time news

About a third of 40 Chinese developers who have been rated by Fitch could face a cash shortage if property sales fell 30% next year. This forecast is contained in the report of the rating agency.

In the baseline scenario, Fitch predicts a 15% drop in home sales in China. In such a case, a cash deficit could arise for 13% of the 40 developers who received the rating, Fitch predicted.

According to Fitch, developers rated ‘B’ or below will have to pay off the bonds, and the volume of these payments will be significantly higher than the current year. A ‘B’ rating indicates that there is significant risk of default, but a limited margin of safety remains. According to Nomura analysts quoted by CNBC, Chinese developers will have to pay off $ 19.8 billion in bonds in the first quarter and $ 18.5 billion in the second quarter of 2022. The volume of payments planned for the first quarter is almost double the volume of the fourth quarter of this year. analysts stressed.

Fitch also points to the emergence of a “hidden debt” of public Chinese developers: in October, the agency found it on the developer Fantasia, which did not disclose corporate bond debt in its financial statements.

“The emergence of ‘hidden private debt’ is exacerbating liquidity problems, especially for developers with lower ratings and higher maturity volumes,” Fitch said in a report. The agency added that the operating environment for Chinese developers will remain challenging and “a significant recovery in financing and market access conditions” will not occur until the second half of 2022.

The real estate sector in China has faced a debt crisis in recent months: several developers have identified problems with liquidity, and one of the largest developers of China Evergrande Group on December 9 did not pay $ 645 million on bonds. As a result, Fitch Ratings downgraded the credit rating of the company and its subsidiaries to RD, or “limited default”. Evergrande has a combined debt of over $ 300 billion.

The current problems in the Chinese real estate market could be fraught with consequences for the American economy, the US Federal Reserve System (FRS) warned earlier.

The Fed also pointed to a high level of debt from Chinese companies and regional authorities, as well as a significant debt burden on the financial sector, especially in small and medium-sized banks. In these conditions, the increased attention of Chinese regulators to indebted organizations may cause problems for companies with a high debt burden, especially in the real estate sector.

.

You may also like

Leave a Comment