According to a Financial Times analysis of the latest available data, nearly half of China’s 30 largest developers violated at least one of Beijing’s recently introduced real estate sector leverage rules.
Last August, the Chinese government said,3 red linesIs intended to limit the debt of real estate developers according to three balance sheet indicators. Net liabilities to equity; cash on short-term borrowings.
An FT analysis based on data from Beike Research, part of the Chinese real estate group KE Holdings, shows that 14 out of 30 developers violated at least one red line as of June 14. I did. Last year’s sales.
Survey results come as a group in China EvergrandeThe world’s most cared-for developers bully at the edge of the default after missing interest payments last month.
The Evergrande issue has shaken the global market in the limelight of China’s de-leveraging policy. The company is the most extreme example of high leverage, which has funded China’s real estate development for many years and has supported the country’s rapid growth, and the government is now calling for restraint.
Only a few of the 30 developers in the FT analysis violated two or more red lines, but the liquidity crisis of these companies, including Evergrande and Guangzhou R & F, has spilled over into China’s wider economy. Is a concern.
If a developer violates the rules, there is a limit to their ability to raise new debt.
S & P Global Ratings said the Chinese government has not issued an official statement on the rules, but has been widely reported in the domestic media since last summer.
Ratio of liabilities to assets (excluding advance receipts)
The ratio of liabilities to assets is a leverage indicator that captures most of China’s largest real estate developers, reflecting not only debt but also the size of their obligations to the businesses they work with.
Country Garden Holdings, China’s largest developer of last year’s sales, had a 78.5% debt-to-asset ratio as of June, exceeding the red line limit of 70%. Group stocks plummeted 26% this year, but bonds due in 2024, in contrast to many other peers, are trading higher than par.
Almost half of Evergrande’s total debt of RMB 2 trillion Accounts payable and other accounts payable..
Many developers also have an off-balance sheet obligation to increase leverage when included in a metric.
Throughout the sector, businesses often sell real estate to homebuyers before they are completed and receive prepayments called prepayments. Developers add “contract liabilities” to their balance sheet to offset incoming cash after the project is completed and before the final profit is realized.
Guangzhou R & F, the only Chinese developer beyond all three red lines, shows the worst performance when it comes to net gearing.
This metric deducts a company’s cash holdings from its liabilities and measures its difference from shareholders’ equity. This is a way to compare debt to business value.
With the exception of Evergrande, Guangzhou R & F is one of the most scrutinized developers.Completed sales of large-scale logistics development in southern China this year To blackstone, US Private Equity Farm. We also sold our assets to Country Garden.
The bond sold out sharply in the last few weeks, but rebounded after shareholders Infused funds, Fitch expects to be used for future bond repayments.
Cash to short-term debt ratio
Perhaps the simplest indicator of developer vulnerability is the amount of cash the company has on hand to repay its dying debt. Many are approaching the line, putting pressure on repayment capacity.
As of the end of June, the measure resulted in Evergrande, the second worst criminal, trying to raise cash by offloading assets. Some of this is included in the August interim report, which also warned about default risks.
But that debt reduces the assets it manages to sell.Evergrande Inventory is stopped Along with that of a property management subsidiary listed in Hong Kong at the end of last year. On Monday, the developers said it anticipates a potential takeover offer for the unit.
Some of the other recent sales Shengjing Bank sharesEmphasized creditor scrambling to recoup losses from wobbling developers: Banks demanded that the proceeds from the sale be used to repay Evergrande’s debt.
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