Graphic: Chinese property developers' ability to repay debt hits decade low

Hang Lung Properties

04/10/2021 14:45

By Patturaja  Murugaboopathy  and Gaurav Dogra
    Oct 4 (Reuters) - Even before China Evergrande Group's
 3333.HK  debt crisis sent the country's property sector into a
tailspin, Chinese property firms were struggling to earn enough
to make interest payments on their debt, data showed.
    At the end of June, the aggregate interest coverage ratio of
 21 big Hong Kong-listed Chinese real estate developers fell to
0.94, the worst in at least a decade, according to Reuters
calculations based on Refinitiv data. The ratio - of a company's
interest expenses to earnings before interest and tax - was 1.47
at the end of last year.
    Once China's top property developer, Evergrande missed its
second offshore bond interest payment last week. The company,
once the country's largest, is reeling under a $305 billion debt
pile and faces a massive restructuring.  urn:newsml:reuters.com:*:nL1N2QW07Z
    "Rattled investor confidence from China Evergrande Group's
recent troubles and likely default could spell a potential
funding crunch for the Chinese property sector and
speculative-grade issuers," S&P Global said in a report.
    China had already started to push property firms to cut
excessive borrowing and land buying, and the crackdown hit them
hard and limited their ability to refinance debt that is
maturing in coming quarters.
    Sunshine 100 China Holdings  2608.HK , China Oceanwide
Holdings  0715.HK  and China Fortune Land Development
 600340.SS  have all defaulted on payments this
year. urn:newsml:reuters.com:*:nFWN2PI1NG 
    "The risk that China allows some of these firms to declare
bankruptcy is significant."
    "Allowing an effective default here is a clear statement
from the government that they'd like to deflate the housing
bubble and that they'd be willing to let other major builders
default to further that," said Eric Leve, chief investment
officer at Bailard.
    The country's real estate firms did try to accelerate
efforts to cut debt last year after regulators introduced caps
on three debt ratios. The median debt-to-equity ratio for these
21 firms fell to 1.8 at the end of June - the lowest since 2017
- from 1.9 in December, the calculations showed.
    But their net debt-to-EBITDA held at 4.9 in June from 5.2 at
the end of last year, a score considered risky by industry
experts, suggesting it would take a long time to pay off the
debt.
    "Currently, under the 'Three Red Lines,', Guangzhou R&F and
Evergrande are among our tracked developers that are categorised
beyond the 'yellow' group, indicating weaker-than- peers'
financial positions," said Cynthia Chan, analyst at Daiwa
Capital Markets.
    "In terms of cash-to-short-term debt ratios, besides
Evergrande and Guangzhou R&F, which have very low ratios of
below 1x, Gemdale, Agile and China SCE also have relatively low
cash-to-short-term debt ratios of 1.2x or below."
    Guangzhou R&F Properties Co 2777.HK was raising as much as
$2.5 billion by borrowing from major shareholders and selling a
subsidiary, according to exchange filings last month,
highlighting the scramble for cash as signs of distress spread
in China's property sector. urn:newsml:reuters.com:*:nL1N2QM0XG
    

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Hong Kong listed Chinese property developers' interest cover
ratio    https://tmsnrt.rs/2Ws6i2E
Hong Kong listed Chinese property developers' net debt to EBITDA
   https://tmsnrt.rs/3AYvVHz
Hong Kong listed Chinese property developers' debt to equity
ratio    https://tmsnrt.rs/3mi6muC
Hong Kong listed Chinese property developers' cash to short term
debt    https://tmsnrt.rs/3zVFUMh
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Gaurav Dogra and Patturaja Murugaboopathy in
Bengaluru; Editing by Sayantani Ghosh and Emelia
Sithole-Matarise)
 ((gaurav.dogra@thomsonreuters.com; +91(080) 67496197;))