Moody’s: Refinancing risks will rise for Chinese property developers

China Evergrande building in HK

KUALA LUMPUR: Chinese property sector’s tight credit environment, exacerbated by China Evergrande Group’s (Ca negative) credit distress, will increase refinancing risks for developers, Moody’s Investors Service says.

“Weak investor sentiment in a tight credit environment will increase refinancing risk for the sector, particularly for financially weak developers because they will have less flexibility to deploy financial resources,” says Celine Yang, a Moody’s vice president and senior analyst.

She said Evergrande’s financial difficulties will continue to spill over to other developers, by lowering financial institutions’ risk appetite for the property sector and tightening mortgage and property development loans.

The report also said both onshore and offshore markets will grow more risk averse, widening credit differentiation, narrowing access to funds and raising financing costs. This will skew investment toward stronger corporate issuers.

Moody’s said funding conditions will remain tight for the rest of 2021 – particularly for weaker developers – and market volatility will persist amid the tough operating and financial environment.

Large and financially sound developers, however, will maintain access to onshore and offshore bond markets for refinancing.

“National property sales will remain weak for the rest of the year, which along with the tight funding environment, will constrain land spending as developers preserve liquidity.

“The value of national contracted sales fell 4.5% in August (three-month moving average) from the same period last year, compared with 7.5% growth in July. Contracted sales value for the 30 developers Moody’s tracks declined by 8.9% (three-month moving average) in August from 1.7% growth in July,” it said.