Overseas expansion could be risky for Chinese developers: S&P

HONG KONG -Chinese property developers' expansion overseas, and forays into other businesses, are unlikely to help their credit profiles over the next one to two years, according to ratings agency Standard & Poor’s.

"Investments to diversify operations or expand overseas are at best neutral and somewhat negative to developers' credit profiles," said SS&P credit analyst, Esther Liu. "That's because the initial outlays are mostly small and won't result in immediate financial benefits.

However, such moves could weaken the credit profiles of some developers such as Greenland Holding Group Co. Ltd. and Evergrande Real Estate Group Ltd., considering their already-high leverage."

Longer than usual cash collection cycles outside China because of longer
development cycles - the time from land acquisition to property presale and actual cash inflow - could diminish developers' asset turnover,” S&P says. “In our view, developers expanding abroad could also face a very different set of regulatory
and legal risks, creating higher execution uncertainties.

“Diversifying beyond the property development business has yet to create meaningful returns for sector players. We believe unconnected businesses will be much more difficult to implement for developers, given their lack of expertise and track record.

Businesses that are complementary to property development may be better options in terms of execution ease and synergistic “benefits.” www.standardandpoors.com (ATI).