China’s largest real estate developer over the past six years, Country Garden, today announced losses of 48.932 million yuan ($7.77 million) in the first half of 2023. Evergrande, the other Chinese real estate giant, also posted higher losses of 4,100 million.
The company had earlier this month warned that its losses in the first half of the year could reach 55,000 million yuan ($6,800 million), which contrasts with its net profit of 612 million yuan ($80 million) in the same period of 2022.
In the income statement the company filed today with the Hong Kong Stock Exchange – on which the company is listed – Country Garden attributed its losses to “the downturn in the real estate sector” and the fact that capital markets are “still have not restored confidence”. ‘, which translates into ‘increasing pressure on the company’s operations’.
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The group’s revenue rose 39.4% to 226,309 million yuan ($30,000 million) and also saw a 41.2% increase in real estate sales revenue, accounting for nearly 98% of total revenue.
However, the cost increased by 72.6% to 250,572 million yuan ($35,497 million): “In order to ensure the timely delivery of the constructed properties and the smooth operation of the stores, the company had to strike a balance between sales volume and revenue.” Selling price in some of its promotions,” the company explained.
Country Garden also cited low margin on some of its projects and increased provisions for impairment on developments as factors weighing on its bottom line.
LIQUID PRESSURE IN COUNTRY GARDEN
At the end of the semester, the promoter had a total debt of about 1.36 trillion yuan ($171,439 million), with interest-bearing debt amounting to about 257,910 million yuan (32,409 million U.S. dollars).
“Despite the fact that the company has been doing everything possible to repay debt and financing interest both onshore and offshore (in China and abroad), available liquidity has decreased due to deteriorating yields from sales and weakness the country’s continued refinancing environment this year,” the document said.
“As a result, the company is under increasing liquidity pressure,” adds Country Garden, who claims to have anticipated the current negative cycle in the industry but not its “depth and consistency” that caught him “alert to the downside,” particularly in the case of smaller cities in China, in whose markets it admits it has invested “disproportionately large amounts”.
At the end of the half-year, the company had cash and cash equivalents of 101,115 million yuan ($14,000 million), down 21.2% from the end of 2022.
The company has delivered 278,000 apartments in the first half of the year and promises to continue to complete the properties already sold on time, in line with the goals of Beijing, which has given this aspect a high priority for developers given its impact on social stability. Because real estate is one of the most important investment channels for Chinese families.
MATURITIES OF DEBT
In the same month, the company defaulted on an “offshore” bond issue and suspended the listing of 11 other companies in China; Hong Kong newspaper South China Morning Post warned that a default could have a “much harsher” impact than Evergrande’s in 2021 as Country Garden has four times as many promotions.
Country Garden could expect more than $2.5 billion in bonds maturing by the end of the year, both in China and abroad, according to estimates by JPMorgan, quoted by the South China Morning Post.
The financial position of many Chinese real estate companies worsened after Beijing announced restrictions on access to bank financing for highly indebted developers in August 2020, including Evergrande with a debt of almost $330,000 million.
In recent months, the government announced various support measures in response to the situation, with state-owned banks also providing multi-million dollar lines of credit to various developers.