Debt ratios soar at developers in China

Even the best-performing developers, such as China Overseas Land and Investment and Longfor Properties, cannot escape the trend towards soaring debt ratios as the downturn in the mainland's property market continues.

They can cut back on but cannot do without new construction or replenishment of their land banks. Meanwhile, sales have fallen and cash collection has slowed.

"We expect gearing to rise for most developers and will be interested in 'embedded' debt [perpetual loans, outstanding land premium and jumps in accounts payable] since the level of cash in/outflows will vary by developer," Lee Wee Liat, head of Asia-Pacific property research at BNP Paribas, said in a report.

He cautioned about the rising levels of perpetual debt securities at Evergrande Real Estate Group, one of the top 10 mainland developers by sales revenue. If those were included, the firm's net gearing would have been 149 per cent at the end of last year.

Evergrande has yet to announce its interim results. But developers that have released their latest balance sheets all reported soaring debt ratios.

China Overseas Land, the biggest Hong Kong-listed mainland developer by market value, posted on Friday a jump in net gearing ratio to 37.2 per cent at the end of June from 28.4 per cent six months earlier.