China's property crisis: Evergrande shows losses of 72bn

Chinese property developer Evergrande announced on Tuesday (18 July) net losses of more than €72bn over the past two years, illustrating the liquidity crisis that has rocked China's real estate sector.

The company recorded net losses of 476,035 million yuan (€59,051 million) in 2021 and 105,914 million yuan (€13,138 million) in 2022.

The group, which in 2020 had revenues of 8,076 billion yuan (€1,001 billion), also indicated that at the end of 2022, its total liabilities amounted to around 2.44 billion yuan (€302,317 million), down 5.53% year-on-year but still almost 25% higher than at the end of 2020.

Of this amount, 612,390 million yuan (€75,939 million) corresponds to loans, but the figures also reflect a 20.1% decrease in the value of the company's total assets, compared to 2020, now standing at 1.84 billion yuan (€227,991 million).

In 2022, Evergrande's revenue was 230,067 million yuan (€28,529 million), a drop of almost 8% compared to 2021 and nearly 55% compared to 2020.

In addition to operating losses, Evergrande attributed much of the negative results to factors such as the return of land or the impairment of financial assets.

Although the publication of this accounts report was one of the conditions for Evergrande to resume trading on the Hong Kong Stock Exchange, frozen since March last year after losing almost 90% of its value since the beginning of 2021, the company has indicated that the suspension will remain in place "until further notice".

In a separate statement released on Monday, the conglomerate said it expects a court hearing in Hong Kong on 24 July to discuss the details of its debt restructuring plan with international creditors, with similar initiatives on the same day in the UK, Virgin Islands and the following day in the Cayman Islands.

Evergrande committed to delivering sold properties

Evergrande revealed this year that it will need additional funding of up to 300bn yuan (€37.208m) to meet its target of ensuring delivery of properties sold before they are completed.

The financial situation of many Chinese construction companies has deteriorated after Chinese regulators required companies to have a 70 per cent cap on liabilities to assets ratio and a 100 per cent limit on net debt to equity ratio in 2020.This has led to a liquidity crisis in the sector, which has been exacerbated by measures to combat covid-19.

The collapse of Evergrande is the most emblematic case of this crisis, which has strong implications for the country's middle class. Faced with a thin capital market, the sector concentrates a huge share of Chinese household wealth - around 70 per cent, according to different estimates.

In recent months, in the face of the crisis in the sector, the government has changed its tune and announced a number of support measures, with state banks opening multi-million dollar credit lines for various construction companies.