Moody’s: rebound for China property unlikely to improve ratings

Hong Kong, August 13, 2009 -- Moody's Investors Service says the rebound 
in China's property market in the first half of 2009 is unlikely to 
result in improvement in its ratings for Chinese developers. 

A recently published comment by Moody's notes that the developers have 
had a positive first half off the back of a strong turnaround in the 
property market and improving access to funding. However, the agency 
notes that there is considerable uncertainty as to the duration and 
strength of such a recovery given the high regulatory and operating
uncertainties in China.

In addition, Kaven Tsang, the report's lead author and a Moody's analyst, 
adds, "Some of our issuers still have weakened balance sheets and 
liquidity positions, while a few small developers and others have 
obligations related to upcoming large land payments and short-term, 
offshore debt."

Tsang adds, "We are also cautious about the strategies of many developers 
in managing their balance sheets because they have previously shown a 
willingness to extend their balance sheet with debt when acquiring land 
during 2007 and early 2008 just before the property market turned."

In commenting on a recent sharp drop in Chinese banks' lending for July, 
Tsang notes, " The numbers confirm our expectations of a slowdown for the 
year's second half. Although draconian governmental measures to tighten 
credit are unlikely, we question the sustainability of the strong rebound 
in the Chinese property market, which depends on the central government's 
continuation of a relatively relaxed lending policy."

Peter Choy, a Moody's senior credit officer and co-author of the 
published comment, says, "Some cash-strapped developers have taken 
advantage of the fist half's recovery in the property market to issue 
convertible bonds and equity or sell assets, which will help restore 
developers' balance-sheet liquidity." However, Choy warns, "These 
improved financial profiles may again deteriorate if some issuers rush to 
replenish their land holdings, so financial discipline remains a key 
rating consideration."

The recently published report, entitled, "China's Property Developers: 
Operating environment and strategies remain uncertain over the near 
term," is available at www.moodys.com.