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S&P sees further downgrades for developers (2)

By Sophie He  (China Daily)

08:22, September 21, 2012

The central bank has reduced interest rates by 0.5 percentage points and cut bank deposit reserves several times since November 2011.

The offshore bond and equity markets have also reopened to mainland developers, and some have already tapped them for funding over the last two months.

Longfor Properties Co Ltd, one of China's top 10 developers by sales, said on Wednesday it would issue HK$3.09 billion ($400 million) worth of new shares to raise cash to fund projects and to use as general working capital.

"Even Greentown China Holdings Ltd is getting out of its difficult period, by selling assets and restructuring," said Fu, referring to the developer which reportedly needs to repay nearly $3 billion in debt in the next 12 months, while holding only $1.2 billion in cash and bank deposits by the end of June, according to its latest regulatory filing.

S&P is maintaining its negative outlook on the Chinese property sector, because the slowing economy is likely to cap any strong sales growth.

As the economic outlook remains weak, purchasing power and investment sentiment have been negatively impacted, Fu explained.

S&P also expects profit margins within the sector to be squeezed over the next two years, due to price-cutting and promotions by agents since 2011.

"We expect the average selling price (of residential properties) in China to decrease by 5 percent in the second half of this year," said Fu, adding that as sales recorded in 2012 are likely to be recognized over the next one to two years, the EBITDA margin of the property sector will remain under pressure in 2013 and 2014.

She also pointed out that some property developers are stepping up their land and project acquisitions, despite the market uncertainty.

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