67 listed property firms owe 510 billion yuan

16:39, March 24, 2010      

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While 67 property developers saw net profits in 2009 of about 28.25 billion yuan ($4.14 billion), up about 70 percent compared with a year earlier, they accumulated debts exceeding 510 billion yuan, a worrying sign of the financial risks developers are taking.

This is added to the situation that these firms need more financing to expand, with 66 of the listed property companies having financing plans that need loans totaling about 150 billion yuan.

According to the 2009 annual reports, 40 of the 67 firms saw a more than 30 percent increase in the gross profit rate, with Chixia Development having the highest at 64.36 percent. China's largest property developer Vanke saw a 29.39 percent rise in gross profit rate.

However, by the end of last year, the companies' total amount of debts reached 510.06 billion yuan, up 34.34 percent year-on-year.

Fifty-six of the 67 companies were seriously in the red. Poly Real Estate Group's debts in 2009 were 62.87 billion yuan, an increase of 24.9 billion yuan from a year earlier. Gemdale and Vanke own hold debts of 38.67 billion yuan and 92.2 billion yuan respectively, up 13.98 billion yuan and 11.78 billion yuan respectively.

The debt-to-equity ratio of 32 firms among the 67 is more than 70 percent.

Analysts said that there will be less capital available in the latter half of this year, along with greater hidden risks behind these heavy debts.

An unnamed analyst from Huatai United Securities said that from the first half of last year, property developers adopted extensive policies and the loose monetary policy the Chinese government initiated encouraged the developers to borrow extensively from banks, which resulted in these large debts.

"If the debt-to-equity ratio is lower than 55 percent, it is safe, but now most developers' ratio is too high, " the analyst said. "If the central bank raises the interest rate, the tightening of the property industry will be carried out and then the companies with high debts will face great risks. "

Meanwhile, the senior managers of the property firms saw large rises in their salaries. Ren Zhiqiang, chairman of Huayuan Property is in top spot with an annual salary of 7.07 million yuan, and Wang Shi, chairman of Vanke followed with a 5.9 million yuan.

However, industry analysts pointed out that the high salaries are a burden for the company and is not good for the long-term development of the company.

Source: Global Times
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