Property: Evaluating Developers’ Cash Positions

Investors have been caught off guard by defaults by Fantasia and acute credit stress at Sinic, even though both property developers appeared to report strong cash coverage relative to their short-term debt. Restricted cash and cash from subsidiaries can inflate a property developer’s cash position, distorting its real capacity to mobilize cash and repay debt. To more precisely monitor developers’ cash positions, we would recommend excluding restricted cash and discounting the cash provided by subsidiaries.

Posted October 14, 2021
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Power Shortages: Coal Prices Surge, Energy Targets Bind

Power shortages accelerated this week in China and will impact industrial production, exports and consumption in the coming weeks, while pushing up producer prices as well. The worst of the impact on output will emerge in the September data, as power cuts in many provinces specifically targeted by the NDRC for exceeding energy consumption targets will ease in October. However, rising coal prices and weaker coal output could contribute to ongoing power shortages later in the winter as well.

Thermal coal production appears to be rebounding at government direction, which will help to support coal inventories at power plants. But localities will continue to struggle to meet overall energy consumption targets in the years ahead, so China may face reoccurring power shortages in the future.

Posted October 4, 2021
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Property Market Chartbook, September 2021

Major property sector indicators including starts and land sales weakened in August, and property sales have continued declining in major cities so far in September. All eyes are watching Beijing for its next steps in managing the Evergrande debt crisis, while the softening property sector is likely to meaningfully slow the economy in the months ahead.

Posted October 4, 2021
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