Fitch listed common traits of major contributors to rapid fall of Chinese property developers in property crisis

 

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Fitch Ratings shared the common traits that were major contributors to the rapid fall of Chinese property developers in the early stages of the country’s latest property market crisis

Complex group structures, including high exposure to joint ventures and non-controlling interests, increased the opacity of funding arrangements and raised the likelihood of cash leakage, affecting the ability for the property developers to get cash from project companies, particularly amid a severe downturn, Fitch Ratings said in a research note. 

These features were reflected in the large proportion of speculative-grade issuers in Fitch’s portfolio in the first half of 2021, notably the ‘B’ category, which made up the majority of rating migration, with 85% of them tipping into distressed levels, followed by the ‘BB’ category at 69%, it said.

Grey funding channels were also widely used by developers to bridge funding gaps, it said. Poor transparency in some cases, including hiding or disguising debt as equity, allowed developers to overstate liquidity and understate leverage, intensifying the rapid decline of distressed developers, it added.