Chinese Developers Face Tighter Financing, Local Curbs, S&P Says

Chinese developers face risks such as narrowing financing channels and more property tightening measures by local governments this year, according to Standard & Poor’s.

Developers’ balance sheets and access to funding are likely to weaken in 2014, while big cities including Beijing and Shanghai may impose further curbs if prices rise too fast, S&P Hong Kong-based analyst Bei Fu said on a conference call today. The credit-rating company maintained a stable outlook for the sector, though said developers that overly expanded in the past 18 months could be downgraded.

Chinese developers issued about US$22 billion of bonds on the offshore markets in 2013, almost double the previous year, according to S&P, as land prices increased. New-home prices in December had the biggest year-on-year gain in 2013, according to SouFun Holdings Ltd., the nation’s biggest real estate website owner, while sales tracked by the government in the first 11 months of 2013 were just shy of $1 trillion.

“Many developers exceeded their sales target last year, but we also saw them issue bonds as they realized that their land acquisitions went beyond budget,” Fu said. “The offshore bond market this year may not be as strong as in 2013 because of quantitative easing tapering in the U.S.”

Tighter Liquidity

Liquidity is also getting tighter at home. The People’s Bank of China didn’t inject any funds into the interbank market in the past two weeks, according to data compiled by Bloomberg. The seven-day repurchase rate, a benchmark money-market rate indicating cash availability in the banking system, jumped 26 basis points yesterday to 4.29 percent, according to a daily fixing compiled by China’s National Interbank Funding Center. That was the biggest increase since Dec. 31.

Some developers face rising default risks, including Renhe Commercial Holdings Co. and Glorious Property Holdings Ltd., controlled by billionaire Zhang Zhirong, S&P said.

High land prices and a liquidity drain are the two biggest challenges Chinese developers face this year, Eva Lee, a property analyst at UBS AG, said earlier this week.

At least 10 Chinese cities have tightened local property policies since November.

Home prices will rise about 5 percent from 2013, while home sales volume will jump about 10 percent, according to S&P.

— With assistance by Bonnie Cao

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