Chinese developers are seeing soaring profits. But there’s another metric investors should watch

A review of 80 publicly traded real estate companies found that cash-to-short-term debt levels reached a three-year low

National /
Sep.September 05, 2018 11:15 AM

(Credit: iStock)

At a glance, Chinese developers’ earnings appears promising, but a closer look shows their ability to refinance debt is at its lowest point in three years and has more than halved in the past year.

Profit levels among the 10 largest Chinese developers increased an average 75 percent in the first half of 2018, compared to the same time last year, while gross margins reached a six-year high of 32.8 percent, according to Bloomberg.

But despite the uptick in profit levels, Chinese developers’ ability to service debt has plunged. A review by Bloomberg of more than 80 publicly traded real estate companies found that cash-to-short-term debt levels were at an average 133 percent, a drop from 297 percent the same time last year. It is the lowest rate since the first half of 2015.

This comes as the sector faces a $23 billion maturity wall in the first three months of 2019, according to Bloomberg’s calculations. And nearly $20 billion could be tacked on to that figure if bond investors request early repayments.

“Although developers try to hoard cash, their buffers are draining,” Christopher Yip, a real estate analyst at S&P Global Ratings, told the outlet.

The findings have been attributed to firms selling increasing amounts of bonds in the local market as well as higher borrowing costs due to the U.S. Federal Reserve tightening. [Bloomberg] — David Jeans 


Related Articles

arrow_forward_ios
China’s real estate sector rankled investors this week while the Fed signaled it would taper its support of the U.S. mortgage market before the end of the year. (iStock)
Real estate stocks slide as China spooks investors
Real estate stocks slide as China spooks investors
Blackstone Group's Stephen Schwarzman, KKR's Henry Kravis and Apollo's Leon Black (Getty, Facebook, iStock)
Blackstone, Apollo, KKR take market hit on Evergrande tumult
Blackstone, Apollo, KKR take market hit on Evergrande tumult
Chinese developers in US struggle as Evergrande mess threatens business back home
Chinese developers in US struggle as Evergrande mess threatens business back home
Chinese developers in US struggle as Evergrande mess threatens business back home
Hong Kong Stock Exchange (Getty)
Investors sell off Chinese real estate stocks
Investors sell off Chinese real estate stocks
Blackstone CEO Stephen Schwarzman and Soho China CEO Zhang Xin (Getty)
Blackstone bails on $3B acquisition of Soho China
Blackstone bails on $3B acquisition of Soho China
Whitney Duan and 432 Park Ave (432 Park)
Condo linked to China’s missing magnate sells at 432 Park Avenue
Condo linked to China’s missing magnate sells at 432 Park Avenue
Home prices in cities across Asia-Pacific shot up in the past year
Home prices in cities across Asia-Pacific shot up in the past year
Home prices in cities across Asia-Pacific shot up in the past year
Evergrande Group CEO Hui Ka Yan (Getty)
Property wing of world’s most indebted developer posts rare earnings loss
Property wing of world’s most indebted developer posts rare earnings loss
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...