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| HONG KONG (Standard & Poor's) Nov. 14, 2014--China's corporate sector is finding it harder to service its debts, according to a study that Standard & Poor's Ratings Services has just published, titled "Credit China Spotlight: Financial Risks Are Rising For The Top 200 Corporates." Standard & Poor's surveyed 200 of China's largest corporates by revenue and bond issuance across 18 industries. The study shows that weaker revenue growth and margins have offset moderating capital expenditure. Many industries are also battling chronic overcapacity, low profitability, and rising leverage. "The top corporates are sensitive to a sharp economic downturn. We expect some companies to experience considerable pain, even possibly consolidation or default," said Standard & Poor's 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 program because these behemoths account for the largest share of debt and assets in the corporate sector. But it will take time before reforms can control the financial risks of state-owned enterprises. The top corporates in our survey accounted for about 20% of China's total non-financial corporate debt at the end of 2013. Their aggregate gross debt of Chinese renminbi (RMB) 16.6 trillion is equivalent to about 30% of China's GDP in 2013. "As China transitions into a more balanced growth model and introduces financial and economic reforms, the credit profiles of some companies should start to slowly improve over the next few years," said Mr. Lee. Standard & Poor's will publish a companion article next week that further explores the credit risks for individual sectors. The follow-up article focuses on our assessments of business and financial risk profiles for the top 200 corporates. The two articles are part of our "China Credit Spotlight" series, which examines the credit conditions for China's top corporates and banks, key sectors, local and regional governments, and structured finance. Under Standard & Poor's policies, only a Rating Committee can determine a Credit Rating Action (including a Credit Rating change, affirmation or withdrawal, Rating Outlook change, or CreditWatch action). This commentary and its subject matter have not been the subject of Rating Committee action and should not be interpreted as a change to, or affirmation of, a Credit Rating or Rating Outlook. The reports are available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. If you are not a RatingsDirect subscriber, you may purchase copies of these reports by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request copies of these reports by contacting the media representative provided. | ||||||||||||||||||||||||
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