Liquidity for property developers falls further

The liquidity profiles of Chinese property developers are deteriorating, Moody's Investors Service said in a report on May 24.

"The liquidity positions of our 29 rated Chinese property developers are worsening, with our updated stress test now showing 11 issuers with weak liquidity versus just four in December 2011," said Peter Choy, a Moody's Associate Managing Director.

"The deterioration stems specifically from higher levels of short-term debt and lower-than-expected cash balances for the end of 2011 against the backdrop of slowing sales and rising inventories," Choy said.

According to the stress test, three factors are behind the worsening in liquidity positions, including the rise in short-term debt; the fall in the amount of cash available to cover the short-term debt; constraints on offshore and onshore funding, including the regulatory curbs on trust financing.

The report said the negative outlook Moody's had first assigned to China's property sector in April 2011 remains in effect because of an anticipated continued weakening in the sector's fundamentals over the next 12 months.

The situation will pressure cash flows and balance-sheet liquidity. Meanwhile, with onshore and offshore credit to the sector still tight, Moody's does not see any likelihood of improvement over the near term.