Mingtiandi

Asia real estate and outbound investment news

  • Facebook
  • LinkedIn
  • RSS
  • Twitter
Sign Up / Login Logout

Lost your password?
Register
Forgotten Password
Cancel

Register For This Site

A password will be e-mailed to you.

  • Capital Markets
  • Events
    • Mingtiandi 2023 Event Calendar
    • Mingtiandi APAC Residential Forum 2023
    • Mingtiandi Asia Logistics Forum 2023
    • Mingtiandi Hong Kong Focus Forum 2023
    • Mingtiandi APAC Data Centre Forum 2023
    • Mingtiandi Asia Office Strategies Forum 2023
    • Mingtiandi Singapore Focus Forum 2023
    • More Events
  • MTD TV
  • People
    • Industry Moves
    • MTD TV Speakers
  • Logistics
  • Data Centres
  • Asia Outbound
  • Retail
  • Research & Policy
  • Advertise

Evergrande Profits Drop 23% as Debts Climb to $57B

2016/09/01 by Cheyenne Hollis Leave a Comment

Xu Jiayin Evergrande

Evergrande boss Xu Jiayin seems all set to approve some more acquisitions

Evergrande Real Estate’s core net profits fell by 23 percent in the first half of 2016 as an increase in revenue was unable to offset a range of higher costs. Total borrowings for China’s most highly levered developer jumped to RMB 381.3 billion ($57 billion) with financing costs expanded threefold from this time last year.

Apart from rising financing costs, Evergrande indicated in releasing its mid-year financials that other causes of the profit slide included higher expenditures for building materials and marketing, which increased by 51 percent. Profits fell to RMB 7.8 billion ($1.2 billion) in the first half after the developer earned RMB 10.2 billion ($1.5 billion) during the same period last year, Bloomberg reported.

Despite the drop in profits, revenue increased by 12.6 percent to RMB 87.5 billion ($13.1 billion) on the back of China’s housing market recovery. Contracted sales also improved, rising by 63 percent during the first six months.

Evergrande Keeps Buying Despite Debt Load

At the same time that its profits have taken a beating, China’s second-largest homebuilder has continued to rack up debt, as Reuters reports that Evergrande has spent $4 billion on banks, construction companies and rivals in 2016. The recent purchase of a 6.82 percent share in China Vanke for RMB 14.57 ($2.18 billion) in August was the latest move in a string of high profile transactions completed by the developer’s billionaire chairman, Xu Jiayin.

In order to fund these acquisitions, the Guangzhou-based developer has relied on a wide range of financing, including its controversial use of perpetual notes. Deal Street Asia reported that the developer now has RMB 116 billion ($17.3 billion) of these notes on issue, up from RMB 76 billion ($11.3 billion) at the end of last year. These notes, which were first issued in China in 2013, are considered to be bonds with no maturity dates and Evergrande has taken advantage of the opportunity to book the obligations as equity on company balance sheets.

The developer claims it is finished issuing perpetual bonds as it has satisfied its land needs. The company also reported that its debt-to-equity ratio has dropped six basis points to 92.9 percent since the end of 2015.

“If we hadn’t determined to acquire land by high leverage, we wouldn’t have accumulated a land bank of 180 million square meters, beating any other developer,” Evergrande chief executive Xia Haijun said at an earnings briefing. “That will secure us a high growth in sales in the next 3-5 years, and the gearing will come down in that time.”

Analysts Downgrade Evergrande on Profit Slide

Evergrande Airbus

Part of the debt may come from paying for the chairman’s private Airbus

Evergrande’s use of perpetual notes does not sit easy with some. Hong Kong-based analyst Alan Jin from Mizuho Securities Asia wrote in a note that they view them as essentially being a form of debt.

According to CNBC, CIMB Bank downgraded its rating on Evergrande after news of the falling profits broke as it was worried about net gearing as well as the developer’s continual use of perpetual bonds. According to CIMB, Evergrande’s debt level surged to about 600 percent by the end of June if perpetual notes were considered to be debt.

“Such high leverage could put the company at high risk if there is a sudden change in liquidity or a sharp slowdown in the property market in China,” analysts from CIMB stated. “We do not think perpetual bonds are ideal source of funding due to high cost and earnings erosion. We believe Evergrande needs to fund its growth in a more disciplined way.”

Earlier in the year, Standard & Poors’ lowered its rating for Evergrande’s unsecured bonds to CCC+, while Moody’s downgraded its debt rating to B3. Additionally, the developer’s risk of default increased to 6.2 percent in April.

Share this now

  • LinkedIn
  • Share
  • Tweet
  • Email

Filed Under: Finance Tagged With: China Evergrande Group, daily-sp, Xu Jiayin

Leave a Reply

Your email address will not be published. Required fields are marked *

Get Mingtiandi Delivered

  • This field is for validation purposes and should be left unchanged.

MTD TV

Liz Chu Weave Living
Blackstone, Weave, Lofter and Fairland Go Granular for Hong Kong Value-Add
MTD TV Emerging classes in residential screenshot
Student Housing, Senior Living Offer Amped Yields for Multi-Family Investors: MTD TV

More MTD TV Videos>>

People in the News

TE Capital and Tokyo Trust Amp Up Japan Business with Hire of Former BlackRock Exec
Nicole Musicco CALPERS
Asia Real Estate People in the News 2023-09-25
Craig Shute Knight Frank
Knight Frank Names Craig Shute Greater China CEO, Brunner on Leave
Ganen Sarvananthan
TPG Upgrades Asia Managing Partner Sarvananthan to Lead Middle East Expansion

More Industry Professionals>>

People in the News

TE Capital and Tokyo Trust Amp Up Japan Business with Hire of Former BlackRock Exec

Christopher Handte joins TE Capital's Tokyo Trust unit in Japan TE Capital Partners and it's Tokyo Trust unit are … Read More>>

Asia Real Estate People in the News 2023-09-25

Nicole Musicco CALPERS

A top level change at a North American pension fund manager leads this week’s collection of personnel moves from around … Read More>>

Knight Frank Names Craig Shute Greater China CEO, Brunner on Leave

Craig Shute Knight Frank

Knight Frank has named new leadership for its Greater China business bringing former JLL and CBRE executive Craig Shute … Read More>>

TPG Upgrades Asia Managing Partner Sarvananthan to Lead Middle East Expansion

Ganen Sarvananthan

US private equity giant TPG announced this week that it has appointed Ganen Sarvananthan, one of the managing partners … Read More>>

More Industry Professionals>>

Latest Stories

A Cainiao warehouse in mainland China
Alibaba Files for Potential $2B Hong Kong IPO of Cainiao Logistics Division
TE Capital and Tokyo Trust Amp Up Japan Business with Hire of Former BlackRock Exec
CSI Properties' Harbourside HQ in Kowloon Bay. (Photo: CSI Properties)
Bargain Leases Bring August Thaw to Hong Kong Office Market

Sponsored Features

Behind the Gate: The Anatomy of a Data Centre
Flexible Solutions for China’s Commercial Real Estate Recovery
Building Property Portfolios Ready for China’s New Economy-Led Rebound

More Sponsored Features>>

Connect with Mingtiandi

  • Facebook
  • LinkedIn
  • RSS
  • Twitter

Real Estate News

  • Capital Markets
  • 2023 Event Calendar
  • MTD TV Archives
  • People
  • Logistics
  • Data Centres
  • Asia Outbound
  • Retail

More Mingtiandi

  • About Mingtiandi
  • Contact Mingtiandi
  • Mingtiandi Membership
  • Newsletter Subscription
  • Advertise
  • Terms of Use
  • Privacy
  • Join the Mingtiandi Team


© 2007-2023 China Advertising Media Ltd (Samoa). All rights reserved.

  • This field is for validation purposes and should be left unchanged.