TEXT-S&P: Credit Conditions Stabilizing For Chinese Developers

(The following was released by the rating agency)

HONG KONG (Standard & Poor's) Aug. 13, 2012--Signs of stabilization are emerging for the Chinese property sector, with improving operating and credit conditions in recent months. That's according to a recently released report by Standard & Poor's Ratings Services, titled "Top 10 Investor Questions: Chinese Real Estate Developers."

"Tough times still lie ahead for many industry players, particularly in the residential space, but we're seeing some bright spots," said Standard & Poor's credit analyst Bei Fu.

The report says that buyers are returning to the market, after staying on the sidelines for much of 2011 onwards. Sales are rising as the government has relaxed credit restrictions and cut interest rates. While property prices may still fall over the next six months, Standard & Poor's estimates the dip at less than 5%.

Developers started this year with weakened liquidity and historically high debts due to mature within 12 months.

"Some companies' liquidity has improved, having sold assets and refinanced large maturities to avoid defaulting. But the polarization between the weakest and strongest players is becoming more pronounced," said Ms. Fu.

The report covers the top investor questions on the outlook for China's real estate sector.

Rating trends remain negative despite some positive rating actions in the past two months. This is because the majority of our ratings have negative outlooks, reflecting the issuers' weakened credit profiles and liquidity. A small number of positive actions may occur in the next six to 12 months. That's because some developers' property sales have been better than we expected, while some companies have eased their liquidity pressures through asset sales or refinanced large offshore maturities.

"Property sales may be stabilizing, but lower prices will translate into weaker profitability for all developers over the next one to two years. Credit ratios for most developers will deteriorate in 2012 and 2013 as they recognize weaker property sales at lower margins for the past 12 months," said Ms. Fu.