Almost 8 out of 10 local firms jittery over China's ballooning debt threat

The mainland's property sector is most at risk.

An overwhelming majority of Singaporean firms are becoming increasingly nervous about China's ballooning debt, a report by Moody's Investors Service revealed today.

A poll by Moody's showed that 79% of local firms believe that the Chinese property sector will face the biggest credit challenges in 2015.

Another 61% of respondents believe that the Chinese banking sector will face the greatest credit challenge this year.

"Broadly speaking, we share the same concerns that participants in Hong Kong and Singapore identified, given the
aggressive increase in non-financial corporate borrowings seen in recent years. For example, using Bank for International Settlements data, we estimated that non-financial corporate leverage in China rose to an estimated 156% of nominal GDP in the second quarter of 2014 from 108% in 2006," stated the report.

Rising leverage and refinancing risks are — according to respondents in Hong Kong and Singapore — the two most pressing challenges facing Asian corporates in 2015. As shown in Exhibit 4, these risks accounted for an average 28% and 22% of those surveyed in Hong Kong and Singapore, followed by foreign exchange volatility (16%) and China’s property sector downturn (14%).

"Market participants believe that rising debt levels and refinancing risks are the most prominent risks facing Asian
corporates in 2015. While we share these concerns, we believe it is important to distinguish between Moody's-rated and unrated entities, because leverage is likely to stabilize and refinancing risks will be manageable for most Moody's-rated entities. The most likely credit impact of weaker corporate balance sheets will be via the banking system, with asset quality expected to deteriorate across most systems we rate," Moody's stated.

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