Debts blowout weighs on Evergrande dreams

Business | Bloomberg and Tereza Cai 3 Sep 2019

China Evergrande (3333), China's largest property developer by sales with dreams of becoming an electric-car powerhouse, is finding it is an inopportune time to load up on debt.

The firm's total borrowings swelled almost US$20 billion (HK$156 billion) in the first half to an eye-watering US$113.7 billion. That's spooked investors as about US$53 billion of that falls due in the next 10 months and 75 percent within the next two years.

The debt blowout, the biggest for Evergrande in 2 1/2 years, was fueled as the firm poured billions of dollars into its electric vehicle ambitions, while additional curbs on the housing market slashed sales.

It also comes as the government is tightening funding avenues for home builders as part of a drive to deleverage the economy.

"Evergrande faces its biggest liquidity pressure in at least two years," said Zhou Chuanyi, a credit analyst at Lucror Analytics in Singapore.

"It's more difficult to borrow money, and they have a lot of debt to repay. The two kinds of pressure are squeezing them at the same time."

Given the market environment, deleveraging seems unlikely, at least in the second half of the financial year, analysts from Nomura wrote.

Evergrande is already paying among the highest rates to sell bonds in the offshore dollar market. Of the 68 issues by Chinese real estate developers this year, the average coupon was 7.9 percent. Evergrande paid 10.5 percent when it sold US$700 million of five-year notes in April.

Earlier this year, Evergrande's billionaire founder and chairman, Hui Ka-yan, spent US$1 billion of his own money buying the company's bonds in a show of faith in the firm.

As well as failing to make good on its promise to deliver a first "pure battery" electric vehicle by June, Evergrande also missed its pledge to cut its net debt-to-equity ratio to 100 percent, according to Bloomberg Intelligence. Instead, it held steady at the end of the half at 153 percent.

Separately, contracted sales of mainland property developer Guangzhou R&F Properties (2777) in the first eight months were at 81.25 billion yuan (HK$88.83 billion), just half of its full-year target of 160 billion yuan.

The company's sales in August rose 14 percent year-on-year to 10.53 billion yuan.

Ronshine China (3301) recorded 18 percent growth in its August contracted sales at 10.93 billion yuan, while accumulative sales so far this year rose 7.5 percent year-on-year to 80.49 billion yuan, 57.5 percent of its full-year target.

The China Index Academy found that home prices in 100 cities in the mainland rose at a slower pace in August, but more cities saw rising prices.

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