Two-thirds of China's top developers breach a 'red line' on debt

Hong Kong

CHINA'S indebted developers are struggling to meet Beijing's tighter financing rules.

Two-thirds of the top 30 Chinese property firms by sales ranked by China Real Estate Info have breached at least 1 of the metrics known as the "3 red lines," Bloomberg-compiled data showed as of Oct 29.

Developers are facing rising financial stress as stricter rules around borrowing and a de-leveraging campaign by authorities weigh on the sector.

A liquidity crisis at China Evergrande Group has roiled markets, with the nation's real estate sector making up almost half of the world's distressed dollar-denominated debt. Speculative-grade yields briefly topped 20 per cent in October - the highest in a decade.

The 3 lines are as follows, according to a state media report on a government website:

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• The property firms' liabilities should not be more than 70 per cent of assets
• Net debt should not exceed equity
• Cash should be at least equal to short-term borrowings

A search of public statements by the government did not turn up any concerning any breaches of the red lines.

Other firms with the largest amount of outstanding debt and liabilities like China Evergrande Group and China Railway Construction Corporation have also violated 2 red lines. There were no immediate replies to questions sent to those and the other companies mentioned in the graphics above. BLOOMBERG