China's top 200 Corporates under increasing financial strain: S&P

HONG KONG - China's corporate sector is finding it harder to service its debts, according to a new study by ratings agency Standard & Poor's. S&P says a survey of 200 of China's largest corporates by revenue and bond issuance across 18 industries shows that weaker revenue growth and margins have offset moderating capital expenditure.

Many industries are also battling chronic overcapacity, low profitability, and rising leverage, S&P says.

"The top corporates are sensitive to a sharp economic downturn. We expect some companies to experience considerable pain, even possibly consolidation or default," said S&P credit analyst Christopher Lee. "Asset-heavy and capital-intensive sectors are the most vulnerable."

The study suggests the central government will find it hard to revive the debt-laden corporate sector. State-owned enterprises will play a critical role in the Government's reform programme because they account for the largest share of debt and assets in the corporate sector.

It will take time before reforms can control the financial risks of SoEs, S&P says.

The top corporates in the survey accounted for about 20% of China's total non-financial corporate debt at the end of 2013. Their aggregate gross debt of RMB16.6 trillion is equivalent to about 30% of China's GDP in 2013. www.standardandpoors.com (ATI).