{"id":49545,"date":"2017-10-30T05:21:35","date_gmt":"2017-10-30T05:21:35","guid":{"rendered":"https:\/\/www.biphoo.com\/bipnews\/?p=49545"},"modified":"2017-10-30T05:21:35","modified_gmt":"2017-10-30T05:21:35","slug":"as-china-home-prices-cool-some-property-companies-seek-to-reduce-risks","status":"publish","type":"post","link":"https:\/\/www.biphoo.com\/bipnews\/business\/as-china-home-prices-cool-some-property-companies-seek-to-reduce-risks.html","title":{"rendered":"Business Updates USA News, Current Business Updates USA"},"content":{"rendered":"

As China home prices cool some property companies seek to reduce risks<\/span><\/strong><\/span><\/h2>\n

As China home prices cool some property companies seek to reduce risks: They are reducing balance sheet leverage, buying land through joint ventures with other property companies to reduce risk, or diversifying into other businesses.<\/span><\/p>\n

Their concern is that they can no longer bank on paying ever richer prices for land if the value of the apartments they build on that land isn\u2019t also still surging. The risk is that if apartment prices drop the developers will be left with expensive unsold properties and suffer losses at a time when their debt levels are already dangerously high.<\/span><\/p>\n

A minority, such as Tianjin-based Sunac Holdings (1918.HK), are planning to reduce their land purchases and focus instead on selling more of the apartments they have already built. The nation\u2019s sixth-largest real estate developer, based on sales, won\u2019t grow as fast as before but it may be in a position to cut its debt ratio.<\/span><\/p>\n

\u201cWe have been developing too fast in the past,\u201d said Gao Xi, vice president at Sunac, which in July bought 91 percent of 13 tourism projects from conglomerate Dalian Wanda Group for $6.5 billion. \u201cOur next step is to slow down the land bank and increase sales. We will unlock profitability and then the gearing will come down,\u201d Gao said at an earnings conference.<\/span><\/p>\n

The company aims to cut net gearing \u2013 total borrowings less cash divided by shareholders\u2019 equity – to 70 percent by the end of 2019 from 260 percent at the end of June.<\/span><\/p>\n

Evergrande (3333.HK), which has China\u2019s second biggest pile of corporate debt on its books behind energy giant CNPC Capital (000617.SZ), said it aimed to cut the ratio to 70 percent by the end of the decade from 240 percent at the end of June.<\/span><\/p>\n

\u201cChina\u2019s property market has moved from a golden era to a stable one, so we need to transform,\u201d said Evergrande Vice Chairman and CEO Xia Haijun at an earnings conference.<\/span><\/p>\n

SHARE PRICES CLIMB<\/span><\/p>\n

China\u2019s new home prices registered a second straight month of weak growth in September, with prices in the biggest markets slipping and gains in smaller cities slowing as government measures to cool a long property boom take hold.<\/span><\/p>\n

Over the last year, more than 45 major cities have imposed restrictive policies of varying severity to curb fast-rising prices, with some forced into several rounds of tightening measures.<\/span><\/p>\n

Investors have applauded the more conservative approach of Sunac and Evergrande, sending their share prices to record highs this month.<\/span><\/p>\n

Credit markets also gave a thumbs up. Evergrande\u2019s $4.7 billion bonds due 2025 VG162759965= which had been trading below offer price since their June issuance rallied to trade at a premium. The bond, carrying an 8.75 percent coupon, is trading at its highest level in price terms which has sent its yield to 8 percent.<\/span><\/p>\n

\u201dWe like the sector on expectations of high contracted sales after a phase of negative cashflows when they were in their growth phase,\u201c said Dhiraj Bajaj, fund manager at Lombard Odier\u2019s asset management business. \u201dDevelopers have been accumulating assets in the form of land banks and now it is time for these assets to bear fruit.\u201d<\/span><\/p>\n

His fund has stepped up purchases of bonds issued by Sunac and Evergrande since their last earnings announcements.<\/span><\/p>\n

\u201cThis cycle is different as developers have taken advantage of the strong demand and are destocking,\u201d said Alexander Wolf, Standard Life Aberdeen senior emerging markets economist. The firm does not have any holdings in Sunac or Evergrande.<\/span><\/p>\n

Still, the more sober approach isn\u2019t universal.<\/span><\/p>\n

S&P Global Ratings said in September the sector would see only a moderate improvement in financial leverage over the next 12 months and that any significant deleveraging was unlikely.<\/span><\/p>\n

\u201cWhether the credit improvement is sustainable or not depends on the sales going forward, but some of the revenue will be offset by the strong appetite in land by developers,\u201d said S&P analyst Cindy Huang on a conference call.<\/span><\/p>\n

DEBT BUILDING UP<\/span><\/p>\n

Property developers\u2019 leverage movement varies across the sector depending on their landbank positions, but some companies stand out due to their aggressive debt build up. This phenomenon is predominant among the smaller developers.<\/span><\/p>\n

Guorui Properties\u2019 (2329.HK) net gearing ratio rose to 196 percent in mid-2017 from 156 percent at the end of 2016. Oceanwide\u2019s gearing ratio rose to 40.9 percent from 27.6 percent.<\/span><\/p>\n

Record land prices and fierce competition, especially in bigger cities, have pushed developers to join hands to bid for land so that they can afford a higher price and share the risks.<\/span><\/p>\n

Country Garden (2007.HK) has raised the amount of its land bank purchased via joint ventures to 50% from 28%, according to CLSA estimates.<\/span><\/p>\n

\u201cGrowth is in their DNA. We will see more joint ventures as the battle for land banks becomes fierce. This will not only see smaller stakes for companies but will also make debt disappear from some balance sheets,\u201d said Macquarie\u2019s property analyst David Ng. \u201cIt helps balance sheets look a bit better.\u201d<\/span><\/p>\n

Other property companies are also making moves to improve their balance sheets with the result that the property sector index, which includes many of the major real estate stocks from mainland China and Hong Kong, recently hit levels not seen since December 2007 .HSCIPC.<\/span><\/p>\n

Some of the major property companies have been diversifying into other businesses to hedge their bets.<\/span><\/p>\n

Vanke (000002.SZ) (1036.HK), the country\u2019s second largest developer has been getting into logistics and education, Beijing-based Sino-Ocean Group (3377.HK) into overseas ventures and investments and Sunac (1918.HK) has acquired a smart TV manufacturer.<\/span><\/p>\n

Agile Group (3383.HK) said it is now looking to its main business to be \u201csupported by a diversified range of businesses\u201d which now include environmental protection and hotel operations.<\/span><\/p>\n

Source:https:\/\/www.reuters.com\/article\/us-china-property-debt\/as-chinas-home-prices-cool-some-property-companies-seek-to-reduce-risks-idUSKBN1CY0X0<\/span><\/p>\n

\n\t\t\t
\n\t\t\t <\/div><\/div>\n\t\t