China Evergrande hits six-year low on profit plunge outlook
04:24, 26 August 2021
Debt-ridden property developer China Evergrande Group said during after-market hours on Wednesday that it expects first half net profit to plunge as much as 39% due to a fall in selling prices of properties and increase in expenses.
On Thursday, shares of the company’s electric vehicle (EV) unit, China Evergrande New Energy Vehicle Group, plunged over 20% after its parent said the EV unit is expected to contribute up to CNY4.8bn ($740m) of total interim losses.
Parent China Evergrande Group said its sees its interim net profit dropping between 29% to 39% to a range of CNY9bn to CNY10.5bn.
Company loses 70% in 2021
Hong Kong-listed shares of China Evergrande Group fell over 5% to hit a six year low of HKD4.23 on Thursday. In 2021, China Evergrande Group has lost nearly 70%.
Its property business is expected to lose CNY4bn in the first six months of 2021, the Guangzhou-based company said.
China Evergrande Group said the losses in its property and EV units will offset a gain of CNY18.5bn realised from a partial stake sale in its internet unit Hengten Networks Group and its holding of the remaining shares on a marked-to-market basis.
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Ratings downgraded
The beleaguered real estate firm “plans to cut its total debt by CNY150bn in 2021 by speeding up sales, limiting land acquisitions and raising equity funding,” Fitch Ratings said in its latest commentary on the firm.
Ratings agencies including FitchRatings, Moody’s and S&P Global, have all downgraded China Evergrande Group’s credit rating to near junk.
“Any material weakening of contracted sales or cash collection could significantly affect the company's ability to service short-term debt,” Fitch Ratings said.
Systemic risk
One of China’s top three property developers, China Evergrande Group, has been taken to court by suppliers on overdue bills and authorities fear that the group’s gargantuan debt size poses a systemic risk.
President Xi Jinping has called for the creation of “common prosperity” in China and has taken a war footing to narrow the wealth inequality gap, which economists say is mainly caused by high cost of housing, education and healthcare.
Beijing has tightened regulations in the property market by restricting developer leverage, clamping down misuse of consumer loans in the property market, capping bank loans to the property sector, as a part of its “Three Red Lines" approach.