On the sidelines of the de-leveraging cylce
While property companies around the world are raising equity at warp speed –
often with deeply discounted rights issues – we think it is worth highlighting the
relatively strong balance sheets of the Hong Kong developers, with the sector
averaging 13.6% in gearing, defined as (net debt/equity), and 15.5% for LTV (total
debt/total assets). This will allow most companies to sit on the sidelines from the
dilutive de-leveraging cycle. While there are other operating risks in HK/China tied
to weakening fundamentals, we think the balance sheet risks in the industry are
moderate relative to their global peers.