Debt defaults cannot be ruled out in Chinese property sector, S&P warns
Debt defaults cannot be ruled out in the Chinese property industry as some developers face a further slide in earnings this year, a ratings agency says.
The annual results for 2014 indicate that many developers are in significantly worse shape than in the previous year, Standard & Poor’s said in a report released on Friday.
Although most of these companies met their sales targets, their profitability generally took a substantial hit.
Continuing slower sales growth and swelling leverage could lead to further negative rating actions over the next 12 months
“The slack operating performance in recent months has weakened the credit profiles of many Chinese developers,” S&P credit analyst Christopher Yip said.
“Continuing slower sales growth and swelling leverage could lead to further negative rating actions over the next 12 months.”
Kaisa Group Holdings is in the spotlight as investors wait to see if the Guangdong-based developer will meet an extended deadline this weekend for payment of interest on its 2017 and 2018 notes.
Kaisa failed to pay the US$52 million interest that was due on March 18 and 19 on the debt. It was given a one-month grace period to pay.
The developer had US$2.5 billion in offshore debt and US$7.6 billion in domestic debt at the end of last year. Failure to make the payment would see Kaisa become China’s third debt defaulter after Shanghai Chaori Solar Energy Science & Technology and internet firm Cloud Live Technology Group.