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8 leading Chinese real-estate firms face mounting risk: Wanda, R&F, Evergrande, Aoyuan, China Overseas Grand Ocean Group, China South City Holdings, CIFI, Fantasia

8 Chinese real-estate firms face mounting risk: report

Liang Shih-huang and Staff Reporter

2014-06-22

US financial services company Standard & Poor’s recently listed eight leading real-estate firms in China and Hong Kong that are facing liquidity risks and a breach of contract violation because of capital pressure exerted by declining sales.

The firm stated that eight leading real-state companies in China, namely, China Aoyuan Property Group, China Overseas Grand Ocean Group, China South City Holdings, CIFI Holdings, Wanda Commercial Properties, Fantasia Holdings, R&F Properties and Evergrande Real Estate Group, had reported debt growth of over 50% in 2013.

Evergrande Real Estate Group doubled its debt in 2013 from a year previously.

Standard and Poor’s also voiced its concerns for smaller property developers saying their re-lending risks were worsening and they might even face severe liquidity risks and fail to pay off their bonds if their sales performance did not improve.

According to data from the National Bureau of Statistics, housing prices in 70 large and medium-sized Chinese cities slipped and the downturn has extended to first-tier cities, such as Beijing and Shanghai.

An analyst from the firm stated that lending costs among Chinese real estate developers has increased substantially in 2014 and the lending channels of banks and issues of bonds has tightened, due to which funding pressures have widened.

Since the central government has become more cautious in releasing liquidity, these Chinese firms are not expected to gain cash flow stemming from government policies in the near future.

Some Chinese real-estate firms are facing worsening financial difficulty, however, because they expanded their lending to acquire land despite the pessimistic prospects of the housing market.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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