Debt China Evergrande faces risk of loan defaults, lawsuits, billionaire chairman Hui Ka-yan considers as reservoirs for profit



Billionaire Chairman of the World’s Largest debtor borrower, China Evergrande, admitted that his company faces risks of loan defaults and legal actions from creditors.

Hui Ka-yan, who founded a home-building company in Shenzhen in 1996, made a rare recognition in his income statement on Tuesday as Evergrande reported a sharp drop in profits… The well-known tycoon also said that construction work has been suspended at some development sites.

“The group has risks of default on loans and litigation,” Hui said.

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Evergrande, largest construction company in China on sales, admitted that billions of yuan in property development payments were overdue and that construction work on some of his housing projects had been suspended as a result.

“The group will do its best to continue its operations and strive to deliver properties to clients on schedule,” Hui said in a statement.

Perhaps it is significant that he did not meet with the media to review the interim results, as is usually the case.

Evergrande may sell properties to suppliers and contractors for compensation some of the outstanding payments– says the documentation.

On Tuesday, the troubled developer reported a 29% drop in net income for the first half.

Interim profit was 10.49 billion yuan ($ 1.62 billion), while revenues in the first six months fell 17% to 222.7 billion yuan from a year earlier, according to half-year results.

Evergrande is in a rush to sell assets to rebuild its balance sheet after years of rapid growth that saw it move into production of electric vehicles, property management and medical services. He even sponsors Guangzhou Football Club in the Chinese Super League.

Evergrande said it previously was in talks with third parties to sell its stakes in its electric vehicles and property management divisions.

Bloomberg said last week that it is also looking to sell the 26-story China Evergrande Center in Wan Chai, which serves as its headquarters in Hong Kong, to the mainland Yuexiu Property.

The company said in a statement on Tuesday that if its efforts to reduce debt are unsuccessful, its “liquidity problems could escalate, which could lead to default on loans and litigation, which could have a material negative impact on the group.”

The People’s Bank of China and the China Banking and Insurance Regulatory Commission issued a joint statement on August 19 stating that they had summoned senior management from Evergrande and urged them to “actively reduce debt risk.”

By the end of June, the company’s interest liabilities fell by a third to 571.8 billion yuan from a peak level last year. That was enough to turn Evergrande orange from red, as it pulled itself within one of three red lines set by Beijing as part of its debt-cutting campaign.

Its net debt-to-equity ratio is currently 99.8%, which is in line with the central bank’s 100% limit, according to the Beike Research Institute.

Its debt-to-asset ratio, excluding advance receipts, is 81 percent, still well below Beijing’s 70 percent ceiling. Its cash reserves, 0.67 times the size of short-term borrowings, also did not meet the requirement to “have short-term borrowings at no more than cash reserves.”

“The future of the beleaguered construction company looks no less bleak,” said Iwan Li, fund manager at Shanghai-based Loyal Wealth Management.

“The outlook for Evergrande is pretty pessimistic. Evergrande’s best performance right now is simply to survive, not promising growth. In addition, the government is apparently trying to cool the entire property market, ”said Lee.

“At the moment, no rational investor can say that Evergrande is worth buying.”

Shares of China Evergrande Group fell 0.68% to HK $ 4.36 on Tuesday ahead of the results.

This article originally appeared in South China Morning Mail (SCMP), the most authoritative voice reporting on China and Asia in over a century. To learn more about SCMP, check out SCMP application or visit SCMP Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.


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