Around half of China’s 30 largest property developers were in breach of at least one of Beijing’s recently introduced rules on leverage in the sector, reports the Financial Times. In August last year, the Chinese government unveiled the “three red lines,” which aim to constrain property developers’ debt according to three balance sheet metrics: the ratio of liabilities to assets; net debt to equity; and cash to short-term borrowings.
If developers breach the rules, they face caps on their ability to raise new debt. Analysis done by the FT, based on data from Beike Research, part of Chinese property group KE Holdings, showed that among the 30 developers, 14 had breached at least one red line as of June 14. These companies accounted for the majority of the 30 developers’ sales last year.
The findings come as Chinese group Evergrande, the world’s most indebted developer, teeters on the edge of default after missing an interest payment last month.