Fitch: More Sub-Sector Differentiation in Chinese Property Drives Downgrades

Coastal Greenland

31/05/2016 01:59

(The following statement was released by the rating agency)

Link to Fitch Ratings' Report: China Property: 2015 Results Prompting Downgrades

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=880634

HONG KONG, May 30 (Fitch) Fitch Ratings says in a new report that the greater 
divergence in the performance of Chinese property companies in 2015 has driven 
more negative rating actions in 2016. There were nine negative rating actions 
between 1 January and 15 May 2016, compared with three positive rating actions, 
out of the 36 Fitch-rated China property companies.

The negative actions were explained partly by large exposure to non-residential 
properties affecting companies like Wanda (BBB/Stable), Greenland 
(BBB-/Negative), CSC (B/Stable), and Hydoo (B-/Stable). The poor cash-collection 
rates for commercial property sales were worse than expected; and the switch in 
buying interest to residential properties following relaxation of home-purchase 
restrictions exerted further pressure on sales. The unexpected rapid 
deterioration of industry fundamentals for trade centres further exacerbates an 
operating environment which is already difficult for CSC, Hydoo and Wuzhou 
(B-/Stable).

The other group of companies that encountered negative rating action had a lack 
of current (or previous) exposure to residential development properties in 
higher-tier cities. They include Country Garden (BB+/Stable), Evergrande 
(B+/Negative), Jingrui (B-/Negative), and Sunshine 100 (B-/Negative). These 
companies face land-acquisition pressures in higher-tier cities, that pushed up 
leverage.

In contrast, the companies that performed well were those which already have 
well-positioned projects in higher-tier cities. Most of these are large SOEs 
including COLI (A-/Stable), China Resources Land (BBB+/Stable), and Poly 
(BBB+/Stable). Leading property companies did well with only a slight 1% 
reduction of their EBITDA margin even as they boosted contracted sales growth; 
whereas the 'B' category property companies saw their EBITDA margins narrow by 
3%, widening the margin differential with the leaders to 5%, from 3% in 2014. 
COLI, CRL and Poly also reduced leverage (net debt/adjusted inventory), whereas 
the aggregate leverage for Fitch-rated Chinese property companies increased to 
38.6%, from 35.9%.

More details of each company's 2015 performance can be found in the report. The 
report also provides a summary of all the companies' credit metrics for easy 
reference and comparison.

Contact: 

Rebecca Tang

Associate Director

+852 2263 9933

Fitch (Hong Kong) Limited

19th Floor, Man Yee Building

68 Des Voeux Road Central, Hong Kong

Su Aik Lim

Senior Director

+852 2263 9914

Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: 
leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@fitchratings.com.

Additional information is available on www.fitchratings.com

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