Up to 1/3 of the 40 Chinese real estate companies rated by Fitch Ratings could face a liquidity crisis in the unfavorable scenario of their home sales revenue falling by 30% next year, the rating agency said.
“The longer the pressure on China’s real estate continues, the greater the risk of losing consumer confidence,” Fitch said in a December 20 report, according to CNBC.
According to the house, China’s real estate industry is facing a debt crisis in recent months, which was triggered by the liquidity problems of Evergrande, which is the most indebted home builder in the world. It is recalled that earlier this month Evergrande defaulted on its obligations, while other Chinese real estate development companies are under pressure. Some were unable to pay interest on their bonds, while others defaulted on their debt altogether.
Fitch, in its report, estimates that in the unfavorable scenario where home sales fall by 30%, then 12 companies or about 1/3 of the 40 Chinese real estate development companies it evaluates could show negative cash flows. According to Fitch’s baseline scenario, a 15% drop in home sales could trigger a liquidity crisis in about 13% of the companies it monitors.
It is noted that home sales in China sank last year along with home buyers’ confidence in companies in the industry. Specifically, home sales showed an annual decline of 16.31% in value in November, falling for the fifth consecutive month. New home prices fell 0.3% from October, the biggest drop since February 2015, according to Reuters.
Fitch’s ominous estimates for Chinese growth companies come as they face even more bond maturities next year.
Nomura analysts say in a recent note that China’s real estate development companies are facing $ 19.8 billion in offshore bond maturities in the first quarter of the new year, and an additional $ 18.5 billion in securities maturities. in the second quarter of 2022. Amounts significantly higher than bonds worth $ 10.2 billion that expired in the fourth quarter of this year.
.
Source From: Capital
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
