Moody's: Coronavirus will hit revenue and cash flow of Chinese construction companies

Moody's Investors Service says in a new report that the coronavirus outbreak will weaken the revenue and cash flow of Chinese construction companies in the first half of 2020, a credit negative. Companies with high exposure to Hubei Province and the property sector are the most exposed.

"Most construction companies in our rated portfolio have manageable exposure to Hubei Province, while property development on average accounts for 8% of revenue," says Sue Su, a Moody's Vice President and Senior Analyst.

"The rated state-owned companies have adequate liquidity buffers to withstand weaker revenue and cash flow over the next three months, with government support also likely if needed, but liquidity risk could rise for smaller and privately owned construction companies," adds Su.

Moody's expects the short-term disruption from the coronavirus outbreak will raise debt/EBITDA for the 12 months ending June 2020 before returning to current levels over the next 12-18 months, supported by strong order backlogs.

However, the impact will be more pronounced if the disruption is prolonged and more restrictive measures are introduced that inhibit the movement of labor and raw materials.

Moody's also lowered China growth forecast to 5.2% for 2020 from 5.8% previously, reflecting a severe but short-lived economic impact.