Chinese developers unlikely to suffer from single-digit yuan depreciation
Standard & Poor's sees single-digit depreciation having little impact on credit profile of firms
Ratings agency Standard & Poor's on Friday said a single digit depreciation in the yuan is not significant enough to hurt the credit profile of China's developers.
That, coupled with a steadying of the yuan yesterday after three days of devaluation, lifted Chinese property stocks, which have been battered since Beijing's shock devaluation. With their heavy foreign debts, developers have been widely expected to be one of the sectors that would be worst hit by devaluation.
"Debt servicing will be more costly, but developers will not really suffer that much. Those with higher offshore debt exposure are also the stronger players in the sector and they have enough buffer, so there will not be a big impact on their credit profile," S&P's corporate ratings senior director Christopher Yip said.
Yip said increasing issuance in the onshore corporate bond market would help to alleviate some pressure on funding costs.
China Overseas Land and Investment, whose foreign debt accounts for 82 per cent of its total debt, edged up 0.427 per cent to HK$23.50 after losing 8 per cent since Tuesday.
Greenland Hong Kong, with 62 per cent of its loans in foreign currency, was up 0.993 per cent after having shed 9 per cent since the devaluation.
Yuzhou Properties, which holds 60 per cent of its loans offshore, ended up 1.17 per cent at HK$1.72 after falling 6 per cent since Tuesday.
"Investors' anxiety over the sector has been eased after the central government stated the yuan would stay strong in the long run," said Alvin Cheung Chi-wai, an associate director at Prudential Brokerage.
He remained upbeat about the market outlook. "China will further encourage domestic consumption to support its economic growth in light of sluggish exports. Property is a major economic pillar that cannot go wrong," he said.
S&P raised its forecast on China's property sales growth to 5 per cent to 10 per cent on expectations the sector will continue to recover.
The ratings agency also revised up growth expectations on average home sales prices to 5 per cent in the next six to 12 months, on improved buyer confidence.
The forecasts on sales and prices were both down 5 per cent to flat previously.
On Wednesday, China Overseas Land and Investment announced it had pulled in property sales of 95.9 billion yuan for the seven months to July, up 16.4 per cent from 82.36 billion yuan during the same period last year.
Phillip Capital Management fund manager Li Kwok-suen, however, added a note of caution on the sector, saying China's property stocks would be volatile in the short term.
"We only see strong buying demand in first-tier cities while the market in inner cities is still suffering from the high level of stockpiles," he said.
