Weak property developers challenged

Weak property developers in China are likely to face a test of their survival abilities this year, Standard & Poor's Ratings Services said in a report on Thursday.

According to the report, refinancing risks in 2012 are high for many developers that S&P rate, especially those with a high proportion of their maturing debt in trust loans and offshore debts.

"Borrowing costs for developers in general have spiraled upward and funding options have declined, thus hurting profitability and cash flow," said Standard & Poor's credit analyst Christopher Lee.

"The companies with higher ratings and access to the offshore loan market also face higher interest rates and shorter offshore loan tenors than before," he said.

According to Lee, the debts maturing in 2012 form about 31 percent of total outstanding debts of our 30 publicly rated China developers, which is "not a high percentage". However, about 42 percent of the debts maturing this year are offshore bonds, offshore bank loans and onshore trust loans, which some developers are finding difficulty refinancing.

Standard & Poor's expects government restrictions on home purchases to remain in place for the rest of this year in many Chinese cities.

"Even if the government softens its tough stance somewhat, we expect only a moderate property recovery," said Standard & Poor's credit analyst Frank Lu.

"Property developers in China face tough choices in 2012. Those companies with large maturing debts and refinancing risks on their offshore debt and trust loans are likely to push property sales by cutting prices aggressively or selling assets," Lu said.