Original title: Listed real estate companies are frequently downgraded. The property market has entered a “risk prevention” cycle
(Economic Observation) Listed real estate companies are frequently downgraded. The property market has entered a “risk prevention” cycle
China News Service, Beijing, October 19 (Reporter Pang Wuji) In the past two days, the international rating agency Moody’s has successively lowered the credit rating or rating outlook of more than 10 Chinese listed real estate companies, including Greenland Holdings, Sunshine City, Kaisa, China Aoyuan, Hopson Development Group, R&F Properties and many other well-known listed companies.
For example: Moody’s downgraded the corporate family rating of Greenland Holdings from “Ba1” to “Ba2”; Kaisa downgraded the corporate family rating from “B1” to “B2”, and included the rating as a negative observation.
In addition to Moody’s, domestic and foreign rating agencies including Standard & Poor’s, Fitch, and China Chengxin International have also downgraded the credit ratings of many Chinese real estate companies in the past two months.
Why are the ratings of real estate companies frequently “downgraded”?
Li Yujia, the chief researcher of the Guangdong Provincial Housing Policy Research Center, pointed out that credit ratings are based on the comprehensive consideration of asset liquidity, fundraising ability, debt solvency, and contract performance capabilities by institutions to rate enterprises into different levels. Credit ratings are divided into subject ratings and product ratings. The former is an assessment of the overall credit risk of a company, and the latter is an assessment of the ability of a publicly issued bond to perform at maturity. The downgrade is mainly due to concerns about the credit risk of real estate companies.
Specifically, it is the decline in the ability to repay mature debts, the decline in the ability to realize assets (the house is not easy to sell), and credit risk exposure.
Since the beginning of this year, many real estate companies have defaulted on their due debts. For example: Xinli Holdings recently announced two debt defaults (and possible defaults) announcements. Modern Land said that the balance of the $200 million bond maturing on October 25 has been postponed for redemption.
There is no shortage of companies that appear to have a healthy financial situation. On October 4, Fantasia announced that it had failed to pay the remaining principal of the 2021 notes of approximately US$205 million on the day of the announcement. However, according to its performance report for the first half of 2021, as of the end of June 2021, Fantasia’s bank balances and cash exceeded 27 billion yuan (RMB, the same below), and only one of the “three red lines” has stepped on the line.
Ding Zuyu, CEO of E-House Enterprise Group, pointed out that the debt default of real estate companies involves the bond market, which continues to cause the capital market to worry about real estate debt. Both the quantity and the amount of defaulted bonds in 2021 far exceed the level of the same period last year. As of September 27, the cumulative number of defaulted bonds of real estate companies this year reached 39, an increase of 25 from 2020, and the cumulative amount reached 46.75 billion yuan. , An increase of 159% compared to 2020.
Ding Zuyu said that in the next three quarters, real estate bonds will mature nearly 490 billion yuan. Corporate liquidity risks have attracted attention from all parties.
“The repricing of credit risk will lead to a downgrade, and it will be a batch downgrade,” Li Yujia explained.
“Risk prevention” will play a more important role in the real estate industry.
In the face of market concerns caused by some real estate companies’ debt defaults, some real estate companies have taken action. Liu Shui, the head of research of the Corporate Business Department of the Zhongzhi Research Institute, pointed out that many real estate companies actively initiated repurchase, on the one hand, it played a positive role in stabilizing investor confidence and alleviating market pressure, and on the other hand, it also demonstrated the strength and liquidity of the company. situation.
Regarding the risks of some real estate companies, officials have recently made relevant statements. Zou Lan, director of the Financial Markets Department of the People’s Bank of China, said recently that the problems of Evergrande Group are an isolated phenomenon in the real estate industry. Most real estate companies operate steadily, with good financial indicators, and the real estate industry is generally healthy.
In addition, Zou Lan also mentioned that recently, individual large-scale real estate companies have been exposed to risks, financial institutions’ risk appetite for the real estate industry has dropped significantly, and consistent shrinking behavior has appeared. This short-term overreaction is a normal market phenomenon.
Li Yujia pointed out that the central bank’s signal indicates that these are only individual events, and the market will resume unblocked after the default event is handled. In the fourth quarter, if financial institutions adjust their real estate financial policies in a timely manner, some newly-started projects will receive financial support, and the speed of mortgage loan issuance will accelerate, which will alleviate this problem.
He reminded that China’s real estate market is in the process of reducing leverage and squeezing the bubble, and local debt defaults will inevitably occur, and even some large companies will go bankrupt and reorganize. Financial institutions at home and abroad should change their concepts and reassess the risks in the real estate market. They should not rely on the fixed thinking of the government, such as “hidden guarantees,” and so on. This is also the process of breaking the expectation of “housing prices will only rise but not fall”.
S&P Global pointed out in a recent study that China’s real estate industry is still full of opportunities and development potential. Although the industry will continue to bear the pressure of slower growth and stricter supervision in the next few years, it is imperative to reduce leverage, but outstanding real estate companies believe that they can gain a more positive competitive advantage. Future operating efficiency and investment benefits are the ultimate measure of the “strong”, not the scale of expansion by increasing leverage. (over)