China Evergrande Group issued a profit warning via an exchange filing of a drop of 29-39% in profits for 1H2021 at a time when the group is under pressure for its mounting liabilities. The group expects its net profits to come in at ~RMB 9-10.5bn ($1.41-1.62bn) for the six month period, down 29-39% YoY on the back of lower selling price of properties and an increase in expenses. The break up of the expected profit is as follows:
- Loss of ~RMB 4bn ($620mn) from the property business
- Loss of ~RMB 4.8bn ($740mn) from China Evergrande New Energy Vehicle Group Limited
- Gain from the sale of part of the shares of Hengten Networks Group Limited held by the Group and its holding on a marked-to-market basis of ~RMB 18.5bn ($2.85bn).
The debt laden property developer has more $300bn of liabilities and this announcement does not augur well for its valuation. According to SCMP, “Financial markets are worried that the size of Evergrande’s debts present a systemic risk were it to fail and the firm’s executives last week were issued a rare warning from regulators to get their house in order.” In another exchange filing, pipe-producer Yonggao has revealed that it is owed RMB 478mn ($73.7mn) in commercial bills by Evergrande of which RMB 195mn ($30mn) is already overdue. The pipe operator has stopped deliveries since May and could join other suppliers in taking legal actions against the property developer over missed payments.
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