Date
19 September 2017
Some mainland property developers have been borrowing aggressively amid a slowing market. Photo: Bloomberg
Some mainland property developers have been borrowing aggressively amid a slowing market. Photo: Bloomberg

S&P warns mainland property developers on mounting debt risk

Some mainland property developers, including Franshion Properties (00817.HK) and Fantasia Holdings Group (01777.HK), have been aggressively using financial leverage amid a slowing market, Standard & Poor’s warned.

The financial services company said the companies all recorded a more than 50 percent growth in their debt last year, and may face potential risks, the 21st Century Business Herald reported Thursday.

Dalian Wanda Commercial Properties, China South City Holdings (01668.HK) and Guangzhou R&F Properties (02777.HK) are also on the S&P list.

Although the mainland real estate market has been cooling down,Chinese developers monitored by S&P spent an average 38 percent of their contracted sales on land purchases in the first four months this year, S&P analyst Fu Bei said.

Franshion Properties may be the most aggressive one, spending 18.5 billion yuan (US$2.97 billion) acquiring land plots during the period, while earning only 3.4 billion yuan from contracted sales.

Fu said finance costs for property developers are climbing in 2014, but their financing channels, including banks and the bond market, are shrinking.

Only large and renowned developers will be able to raise funds from banks and bond markets, she said, adding that smaller players will be pushed to seek other financing channels, including the shadow banking sector.

Authorities are looking for a balance between maintaining a prudent stance on the property industry and providing support for the economy as they want neither an immediate rebound nor a long-term downtrend in the market, observers said.

Developers should not expect the government to help them if they face liquidity crunch, the report said.

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