Small Chinese homebuilders are likely to face high liquidity risks in 2019 as banks tightened lending to property developers last year and borrowing costs in onshore and offshore markets have generally risen, according to a report by Fitch Ratings.
Although funding conditions have improved this year and high-churn homebuilders have reported stronger cash collection from sales, low-churn homebuilders continue to face struggle to collect enough cash to fund existing projects and they may need to rely on external funding or asset sales to meet liquidity needs, the ratings agency noted.
It expects higher funding cost and shorter loan tenors to exacerbate small homebuilders' liquidity risks in 2019, as refinancing of existing offshore maturities has come at a higher cost, which will increase cash outflow for interest payments.
Small homebuilders with tight funding channels have increasingly turned to asset sales to boost liquidity, and Fitch said this could lead to issuers exiting the property development business.
Fitch said it would increase its focus on the management and execution of refinancing risks, particularly of low-churn homebuilders in 2019.
It downgraded the rating on Guorui Properties Limited to 'B-' from 'B' in March to reflect debt repayment pressure it still faces, even though it was able to use the proceeds from its recent U.S. dollar bond issuance to refinance onshore maturities.
New home prices climbed 0.6 percent in 31 second-tier cities and rose 0.7 percent in 35 third-tier cities in March.
