Chinese developers among debtors most at risk of refinancing failure as coronavirus hits businesses, liquidity, Fitch says
- Ten companies face ‘moderate to high’ refinancing risks, with six of them in the real estate development sector: Fitch
- They are among 166 rated companies with US$83.5 billion worth of local and offshore debt maturing between now and June
Chinese companies are facing increasing refinancing pressure as the deadly coronavirus outbreak rages on, with smaller property developers the most at risk of failure, according to the latest report by Fitch Ratings.
The Covid-19 outbreak has impacted the operations of nearly all of the 166 Chinese companies rated by the credit rating company, it said in the report published on Monday. They have a combined 583 billion yuan (US$83.5 billion) worth of domestic and offshore debt coming due between February and June this year.
As a result, 10 out of the 166 companies face ‘moderate to high’ refinancing risks, of which six of them are in the real estate development sector, analysts led by Matt Jamieson wrote in a report published on Monday. “Small home builders that are more challenged by liquidity and funding access will be the most affected.”
Four developers are forecast to have high refinancing risk, including Xinhu Zhongbao which based in eastern Zhejiang province, and Yida China Holdings, a subsidiary of the debt-laden private investment firm China Minsheng Investment Group.
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The two companies did not return emails from the Post seeking comments on the Fitch assessment. Calls to the phone numbers listed on their websites were not answered.
The coronavirus outbreak has claimed 1,775 lives as of Monday, with more than 71,000 confirmed cases of infection, mostly in mainland China. Many factories are still struggling to resume production as a result of local governments’ safety prevention measures.
For developers, the panic has prompted the government to shut thousands of their sales offices nationwide to curb the outbreak. In reaction, China Evergrande, the nation’s third-largest listed developer, will offer a 25 per cent discount on all its projects from February 18 as desperation sets in.
Chinese developers have emerged as the biggest group of borrowers in Asia’s junk bond market in recent years, as near-zero policy rates across the globe powered the demand from investors. The clamour for higher yields has thus given funding access to poorly rated companies to tap the market, stoking default concerns.
Other industries suffering high pressure on their liquidity conditions amid the public health crisis include the retail, leisure and consumer sectors, Fitch said in the Monday report. The manufacturing sector, such as car-making, is also feeling the strain, they wrote.
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Fitch based its refinancing risk assessment by weighing their indebtedness against factors such as the virus impact on operations, capital market refinancing burdens, ownership structures and the likelihood of state rescue.
State-owned enterprises account for the vast majority of local bonds coming due through June, with issuers in the energy and utility sectors accounting for around two-thirds of those maturities, Fitch added. This means that the issuers should have adequate access to capital market funding.
Meanwhile, Chinese authorities have also acted to boost companies’ access to capital, asking banks to lend to smaller and private companies to help them through the crisis. The central bank cut the interest rate on its medium-term lending facility by 10 basis points to 3.15 per cent on Monday. The move effectively infused 200 billion yuan worth of liquidity into the banking system.
“Our current base-case is that even for these issuers the epidemic will be sufficiently contained in the near-term, and that they will be able to manage their near-term refinancing needs,” Fitch said. It may review the assumptions and ratings if the outbreak does not stabilise in the coming weeks, it added.
(Updates ratio in third and fourth paragraph of story first published on February 17. Fitch corrected its report to take into account some early debt redemptions by two Chinese developers).
