J.P. Morgan: Huafa liquidity troubles shake confidence in state-owned developers: How does JPMorgan distinguish the risks?

What happened at Huafa, and why did it affect state-owned developers?

Bloomberg reported on 26 October that Zhuhai Huafa Group was in talks with at least three banks to extend loans and reduce interest rates, and that two trust products had not been repaid on time. On 29 October, Bloomberg reported that the group had repaid some investors in one of the overdue products.
The Zhuhai State-owned Assets Supervision and Administration Commission owns 93.5% of Huafa Group. The episode renewed concerns about developers’ liquidity and prompted investors to reassess their expectations of support for state-owned developers.

As of the first half of 2026, Huafa Group’s net gearing ratio was 200% and its cash-to-short-term-debt ratio was 0.36 times; the corresponding figures for its listed subsidiary, Huafa Industrial, were 101% and 0.53 times. Their total debt stood at 377 billion yuan and 126 billion yuan, respectively.
Operations are also under pressure: property development accounted for 46% of Huafa Group’s revenue in 2025, while Huafa Industrial’s property development revenue fell 51.8% year on year in the first half of 2026.
JPMorgan screened 45 state-owned developers based on their financial data for the first half of 2026. Of these, 22 breached two or three financing red lines, concentrated mainly among smaller-cap developers and local state-owned enterprises. Of the 22 central state-owned enterprises, 5 breached all three red lines.

JPMorgan believes credit confidence in some state-owned developers depends more on government financial support than on their own strong balance sheets. The bank’s baseline view is that the government will strive to prevent defaults on publicly offered bonds issued by state-owned developers.
Bank loans or non-standard debt could still be extended, however. The bank considers the overall default risk of central state-owned enterprises low, while some local state-owned enterprises, particularly those in lower-tier cities, may experience more liquidity volatility.
For equities, JPMorgan continues to favor China Resources Land and China Overseas Land & Investment, which have stronger balance sheets. The bank expects sentiment to pressure the share prices of highly leveraged small and mid-sized state-owned enterprises in the near term, until Huafa receives stronger support and market confidence recovers.

In the week ended 29 October, prices of Huafa’s offshore renminbi bonds fell by an average of about 54 points; Greentown’s 2028 bonds fell about 7 points. By contrast, investment-grade bond prices for China Resources Land and China Overseas Land & Investment were generally stable.
JPMorgan’s credit team favors Longfor bonds: the company has more than 13 billion yuan in available cash and positive free cash flow, with approximately 6 billion to 7 billion yuan of debt maturing in each of 2027 and 2028. Longfor’s 2028 bond, which the bank favors, was priced at 88.4 on 29 October, with a yield to worst of 15.4%.
The bank also expects property development operations to face pressure next year as presale policies are gradually phased out, and therefore favors developers with greater exposure to investment properties.