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MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  China Evergrande Group    3333   KYG2119W1069

CHINA EVERGRANDE GROUP

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China debt crackdown: regulators asking property developers for more details than expected

10/21/2020 | 06:46am EST

HONG KONG, Oct 21 (Reuters) - Chinese regulators are asking property developers to provide more details about their debts than markets had expected, as authorities look to tackle unbridled borrowing in the real estate sector, according to a document seen by Reuters.

Dubbed "the three red lines", regulators outlined caps on debt-to-cash, debt-to-assets and debt-to-equity ratios at a meeting in Beijing in August between 12 major property developers and officials from the Ministry of Housing and Urban-Rural Development and the People's Bank of China (PBOC).

The twelve companies, which collectively account for 28% of the homes sold in the country so far this year, were selected for a pilot debt reduction scheme as policymakers look to reduce broader financial risks.

The new policy will effectively limit developers' annual debt growth to around 15% on average.

Property sources had said they expected a rush to get around the rules by moving more debt off balance sheets.

However, in a form that developers were asked to submit every month, the companies are also being asked for details on items outside the usual financing channels like bank loans and bond issuance. They will need to provide debt figures on off-balance sheet projects.

The contents of the document were confirmed by sources at two of the 12 firms in the pilot, who asked not to be identified due to the sensitivity of the matter.

Other debt information requested include details on projects that give a financial entity guaranteed returns and buy-back agreements - essentially a debt disguised as equity, as well as the amount of securitisation of receivables in the supply chain.

"The government is monitoring everything now, unless you want to cheat, but they will be able to tell from your monthly figures," said a senior executive at one of the developers in the pilot scheme.

According to Chinese media, the cap for the debt-to-assets ratio will be set at 70%, the cap for net debt to equity will be set at 100% and the developers should also have enough cash to match their short-term liabilities.

The authorities have yet to announcement details of the implementation, but the industry expects the rules to be applied sector-wide in the first half of next year.

Pan Gongsheng, a PBOC vice governor, told a forum in Beijing on Wednesday the central bank has the draft of an overall assessment over property financing ready and it will make a public announcement at the right time, without further elaboration.

Analysts at ANZ estimate about one-fifth of real estate companies with China A-shares have leverage ratios exceeding the thresholds.

A sharp reduction in leverage could rattle credit markets and weigh heavily on the property sector, a key driver behind China's swift economic recovery from the coronavirus crisis.

China Evergrande Group, the country's most indebted property developer, has been among those scrambling to raise money, with fears of a cash-crunch sending its shares and bonds skidding last month. (Reporting by Clare Jim; Additional reporting by Cheng Leng in Beijing; Editing by Kim Coghill)


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
BANK OF CHINA LIMITED -0.36% 2.74 End-of-day quote.-17.72%
CHINA EVERGRANDE GROUP -2.53% 16.16 End-of-day quote.-25.19%
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Financials
Sales 2020 647 B 83 470 M 83 470 M
Net income 2020 33 544 M 4 327 M 4 327 M
Net Debt 2020 619 B 79 801 M 79 801 M
P/E ratio 2020 6,20x
Yield 2020 6,96%
Capitalization 214 B 27 599 M 27 600 M
EV / Sales 2020 1,29x
EV / Sales 2021 0,89x
Nbr of Employees 131 615
Free-Float 14,9%
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Mean consensus OUTPERFORM
Number of Analysts 15
Average target price 20,16 HKD
Last Close Price 16,16 HKD
Spread / Highest target 97,3%
Spread / Average Target 24,7%
Spread / Lowest Target -6,03%
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Managers
NameTitle
Hai Jun Xia Vice Chairman & Chief Executive Officer
Shou Ming Shi President
Ka Yan Hui Chairman
Da Rong Pan Chief Financial Officer & Executive Director
Dong Feng Chen Head-Information
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