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.

Evergrande’s already distressed bonds trended lower. It’s 4.25% 2023s and 9.5% 2024s were down 0.88 and 0.49 points to trade at 40.98 and 41.74 cents on the dollar respectively.

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