NewStocks of Chinese developers tumble on debt fears
Stocks chalk up sharp losses as second yuan devaluation in two days raises concern over companies' exposure to foreign currency risks
Mainland developers took a heavy hit as the Hang Seng Index fell nearly 600 points on Wednesday, shaving off 8 to 10 per cent of their share values on concerns that high exposure to foreign currency debt could adversely affect their earnings following the yuan's sharp depreciation.
China Resources Land, which holds 75 per cent of its loans offshore, shed 8 per cent to close at HK$19.78. China Overseas Land & Investment, for which foreign debt accounts for 82 per cent of its total debt, fell 8.32 per cent to HK$23.15. Greenland Hong Kong Holdings, with 62 per cent of its loans in foreign currencies, slid 9.71 per cent to HK$4.
Developers' cash flow, profitability, balance sheets and credit ratings could all be affected as they were forced to record exchange losses on debts denominated in US and Hong Kong dollars, wrote Jefferies analyst Venant Chiang in a research note.
"As 40 per cent of developers' total debts were denominated in US and Hong Kong currencies as of the end of 2014, we see the impact is noticeable," Chiang said.
Companies could mitigate the devaluation risk by increasing the use of domestic bonds when refinancing debt, he said.
In the past 12 months, developers have raised more than 90 billion yuan from the domestic market, compared to 130 billion yuan overseas, according to Jefferies.