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    3333   KYG2119W1069

CHINA EVERGRANDE GROUP

(3333)
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Delayed Hong Kong Stock Exchange  -  04:08 2022-03-18 am EDT
1.650 HKD   +8.55%
12/04China Evergrande Rejects Rumored Dissolution of New Energy Vehicle Unit
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12/02Evergrande’s Electric Vehicle Arm Halts Mass Production on Lack of Orders
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12/02China Evergrande expects to hit 2022 property delivery target
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China Evergrande : The Delicate Task of Dealing With China's Most Debt-Burdened Property Giants -- Heard on the Street

09/01/2020 | 07:40am EST

By Mike Bird

Two of China's most heavily leveraged developers are struggling in the stock market, and new attention from Beijing on their towering debt levels will put them under more pressure. But the central government's efforts don't address a key problem in the country's economic model: Cash-starved local governments need indebted property developers to buy their land.

Shares in China Evergrande Group and Sunac China Holdings Ltd. are down 19% and 30% respectively this year. That partly reflects poor half-year results. In the first half of 2020, Evergrande's net profits were cut nearly in half relative to the first six months of 2019, while Sunac's grew by 6.5%, down from 57.1% year-over-year growth in 2019.

But the dismal stock performances also reflect new, unwelcome attention from Beijing: China's central bank and housing ministry last month corralled developers to discuss lofty debt levels. According to state media, the meeting highlighted three "red lines" for developers to avoid: a liability to asset ratio of more than 70%, a net debt to equity ratio of over 100%, and cash to short term debt ratio of less than 100%.

Evergrande and Sunac are the largest developers where debt metrics are worse than the reported redline level on every count.

What is perhaps most notable is that these poor debt metrics persisted this year even in the context of slowly growing or declining land banks. Evergrande's land reserves declined by more than 50 million square meters in the first six months of the year, reaching a 3 1/2 year low.

Sunac's land bank is still growing, but at a far slower pace: The company's land bank has increased by less than 6% since the end of 2019, to just shy of 250 million square meters. Between the end of 2015 and the end of 2019, the company bought land at a rapacious pace, growing its reserves of land by 750%.

On the one hand of course, that sounds like a positive thing. The companies are heavily indebted, so borrowing less to buy land seems like a good idea on the face of it.

But what's good for the longer-term health of the companies may not be good for the system in general. Somebody needs to buy land from China's local governments, with such sales making up around a third of their revenue. Since those municipalities shoulder most of China's domestic government spending and remit taxes to Beijing, they cannot simply be starved of funds.

Sunac and Evergrande had been some of the largest purchasers of land in recent years. Without major changes to the Chinese fiscal framework, that burden will simply be shuffled to other players.

Beijing's focus on real estate makes it clear that the central government understands the threat that the sector's leverage poses to China's prosperity and stability. But it has yet to offer any meaningful incentives to improve the system: Simply telling Chinese developers they are too heavily indebted, when their rapacious land purchases have been crucial to funding local governments, won't work.

Write to Mike Bird at Mike.Bird@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
CHINA EVERGRANDE GROUP 8.55% 1.65 Delayed Quote.3.77%
SUNAC CHINA HOLDINGS LIMITED -5.18% 4.58 Delayed Quote.-61.12%
All news about CHINA EVERGRANDE GROUP
12/04China Evergrande Rejects Rumored Dissolution of New Energy Vehicle Unit
MT
12/02Evergrande’s Electric Vehicle Arm Halts Mass Production on Lack of Orders
MT
12/02China Evergrande expects to hit 2022 property delivery target
RE
12/01Analysis-Chinese developers' offshore creditors eye bargains; cautious on demand
RE
11/29Chinese developers rush to raise funds as Beijing lifts equity sales ban
RE
11/29Evergrande's Winding-Up Hearing Adjourned; Targets Creditor Support for Restructuring b..
MT
11/29China Evergrande Sells Commercial Land in Shenzhen for $1 Billion
MT
11/28Evergrande to sell Shenzhen commercial plot for $1.05 billion amid debt woes
RE
11/28China Evergrande unit to sell Shenzhen commercial plot for $1.05 billion
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11/28Evergrande aims to win approval for restructuring proposals early next year
RE
More news
Analyst Recommendations on CHINA EVERGRANDE GROUP
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Financials
Sales 2021 474 B 60 883 M 60 883 M
Net income 2021 12 038 M 1 546 M 1 546 M
Net Debt 2021 485 B 62 281 M 62 281 M
P/E ratio 2021 1,82x
Yield 2021 7,06%
Capitalization 21 787 M 2 798 M 2 798 M
EV / Sales 2021 1,07x
EV / Sales 2022 1,03x
Nbr of Employees 163 119
Free-Float 29,5%
Chart CHINA EVERGRANDE GROUP
Duration : Period :
China Evergrande Group Technical Analysis Chart | MarketScreener
Full-screen chart
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus UNDERPERFORM
Number of Analysts 4
Last Close Price 1,65 HKD
Average target price 2,10 HKD
Spread / Average Target 27,4%
EPS Revisions
Managers and Directors
Shawn Siu Chief Executive Officer & Executive Director
Cheng Qian Chief Financial Officer, Executive Director & VP
Ka Yan Hui Chairman
Shing Yim Chau Independent Non-Executive Director
Qi He Independent Non-Executive Director
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