China Developer Debt Risk Rises as Sales Miss: Chart of the Day

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China’s largest property developers risk missing their full-year sales targets as tighter credit and an economic slowdown cut demand for real estate, fueling concern the industry will struggle to repay debt.

The CHART OF THE DAY shows the 13 biggest developers that provided full-year sales targets achieved 49 percent of those goals by the end of July, the weakest level in at least two years, according to data compiled by Bloomberg. The ratio of debt to equity on a Bloomberg Industry gauge of 84 Chinese property companies has climbed to 128 percent, the highest since at least 2005 and almost double the Bloomberg World Real Estate Index’s 76 percent.

New-home prices fell in July in almost all cities that the government tracks, while sales of residential units slumped 28 percent from the previous month, as China’s broadest measure of new credit sank to the lowest since the global financial crisis. Moody’s Investors Service and Standard & Poor’s said this month some smaller Chinese developers may default in the second half amid falling sales and shrinking access to credit.

“Sales haven’t done particularly well in any month this year,” Mizuho Securities Asia Ltd. analyst Alan Jin said by phone from Hong Kong yesterday. If sales disappoint during the peak season in the next two months, that will hurt developers’ share prices, he said.

Country Garden Holdings Co., controlled by China’s richest woman, Yang Huiyan, said it planned to raise $410 million selling shares at a 31 percent discount to yesterday’s closing price to refinance debt. Guangzhou R&F Properties Co. lowered its sales goal for the year by 14 percent this week. Evergrande Real Estate Group Ltd. (3333)’s net debt jumped 65 percent in the first half to 132 billion yuan ($21.5 billion), according to Bank of America Corp., which cut its stock rating to underperform.

While weakness in the property market has prompted cities including Hohhot and Jinan to loosen curbs on home purchases, developers are boosting incentives to increase sales. China Vanke Co., the nation’s biggest real estate company, is giving discounts of as much as $325,000 to home buyers who also shopped on Alibaba Group Holding Ltd.’s Taobao Marketplace, according to a statement this week.

To contact Bloomberg News staff for this story: Jacob Gu in Shanghai at jgu3@bloomberg.net; Moxy Ying in Hong Kong at yying13@bloomberg.net; Billy Chan in Hong Kong at bchan101@bloomberg.net

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Richard Frost

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