Property firms increase bank investments over liquidity concerns in China

April 11, 2014 Leave a comment

Property firms increase bank investments over liquidity concerns in China

Staff Reporter

2014-03-28

More Chinese property companies have been investing in banks since late last year, with more than 30 property firms getting involved in the banking industry including China Vanke and Evergrande Group, due to their concerns over liquidity risks, the Shenzhen-based Securities Times reports.

The future of property firms in China depends on their profitability and cash flow.

Since the end of last year, more than 30 property firms have invested in or made agreements with banks, including Vanke’s participation in Huishang Bank’s public listing and Evergrande’s investment in Hua Xia Bank.

By teaming up with banks, these companies can obtain loans through bank’s wealth management products, avoiding regulatory risks.

The property sector is a capital-intensive industry, with firms typically needing to raise funds through liability operations, but they can be relieved from liability if they have strong sales.

Beijing Beta Consulting Center partner Du Lihong is pessimistic about the nation’s property industry, seeing rising risks in the mid-term, though no serious one-year short-term risks.

Du sees the biggest risk for property firms not on credit risks, nor on possible property price collapses, but on liquidity risks.

The investments in banks by Vanke and Evergrande clearly are clearly aimed at obtaining long-term funding from banks. In 2010, Vanke’s bank loans accounted for 67.3% of its long-term borrowing. The ratio fell to 42.8% in 2012, but rebounded to 66.4% in 2013.

While Evergrande’s bank loans accounted for 100% of its long-term borrowing when it first went public in 2009, with the ratio falling to 52.3% in 2011 and remaining at 52.6% in 2012.

Banks not only offer development loans for property companies, give convenience for their short-term financing, but also provide mortgages for property buyers. Without the support of banks, any property firm would find expansion difficult, insiders said.

 

Filed under Macro Trends

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