Caixin
Jul 02, 2021 07:44 PM
BUSINESS & TECH

Cash-Strapped China Evergrande Slashes Land Purchases to Cut Costs

Evergrande Chairman Hui Ka Yan Photo: VCG
Evergrande Chairman Hui Ka Yan Photo: VCG

Troubled property conglomerate China Evergrande Group slashed land purchases in the first half of the year causing it to slide precipitously out of the country’s top 100 developers in terms of acquisitions as it struggles to boost revenue and cut expenditure to pay off over 600 billion yuan ($92.6 billion) in debts.

Evergrande’s tightening of the purse strings caused it to relinquish the No. 1 spot in terms of land purchases it held in the first half of last year, with acquisitions below 3.7 billion yuan, the lowest amount in the top 100, according to (link in Chinese) data published Thursday by property research firm China Index Academy Ltd. There was no specific ranking or figure available for Evergrande.

In contrast, the Hong Kong-listed company spent (link in Chinese) 63.3 billion yuan during the same period in 2020 and was supplanted in the top spot this year by China Vanke Co. Ltd., who made purchases worth 96.2 billion yuan in the first half of this year.

The plunge reflects the impact tough new measures introduced by the government last year to limit the borrowing by major property developers have had on Evergrande, whose interest-bearing liabilities were 674 billion yuan at the end of March, down from 716.5 billion yuan at the end of last year, according to the annual report.

Known as the “three red lines (三条红线)”, they were aimed at reducing risks to the financial system and mandate a liability-to-asset ratio (excluding presales) of no more than 70%, a net debt-to-equity ratio of under 100% and cash holdings at least equal to short-term debt.

At the end of last year, Evergrande remained in violation of every one of these measures, which means it is not allowed to borrow more funds, Bloomberg has reported. Its Chairman Hui Ka Yan has vowed (link in Chinese) to cut interest-bearing liabilities to below 590 billion yuan by the end of June and to meet all “three red lines” by the end of next year.

Investors are worried about Evergrande’s financial health given its large amount of debt due within one year, with shares falling 32% in the first half to close at HK$10.06 ($1.3) on Friday, compared with a 4% gain by the broader market.

Last month, global credit ratings giants Moody’s Investors Service and Fitch Ratings Inc. both downgraded Evergrande’s ratings and those of several subsidiaries, giving them a “negative outlook,” citing risks and uncertainties due to its large debts and diminished access to new borrowing.

In terms of the size of land purchased, Evergrande bought 2.4 million square meters in the first six months, down sharply from 11.5 million square meters in the same period last year, ranking it 28th among domestic peers.

In tandem with its spending cuts, Evergrande has been frantically selling properties to raise funds and in late May, offered certain homebuyers up to 30% to 40% in discounts if they could pay entirely in cash, numerous company staff told Caixin.

Consequently, in the first half year it reported home sales of 35.6 billion yuan, slightly higher than 34.9 billion for the same period last year, holding on to its No. 2 spot among the top 100 developers in terms of sales area, according to (link in Chinese) the China Index Academy.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Flynn Murphy (flynnmurphy@caixin.com)

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