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Evergrande’s monster debt set to fall further, Xu Jiayin vows

China Evergrande boss was still ordering staff to finish projects quicker and ramp up marketing on Friday. Reports he had jumped off a building were denied.
China Evergrande boss Hui Ka Yan, who is known as Xu Jaiyen on the mainland, was still giving out orders to executives on Friday. Reports he had died were groundless, sources close to the company said. Photo: AFP.

Evergrande chair chairman Xu Jiayin has been battling to get his group’s massive debt below the government’s ‘three red lines’; he said on Thursday liabilities should drop below 600 billion yuan ($93.8 billion) at the end of this month

(AF) On Thursday evening, June 3, Evergrande Group held its annual strategic partner exchange. More than 1,000 partners of the property behemoth attended the meeting, with people from the entire upstream and downstream industrial chain including engineering, decoration, design, building materials, furniture, home appliances, and intelligence.

Bigwigs including Suzhong Construction chairman Li Honghu, China Railway Construction chairman Mei Hongliang, China Construction Fourth Engineering Bureau general manager Ma Yijun, Hefei Construction Engineering chairman Liu Guofu, Nantong Sanjian chairman Huang Yuhui, Gold Mantis chairman Zhu Xingliang, Guangtian Ye Yuanxi, chairman of the holding company, and many others.

Xu Jiayin, chairman of Evergrande Group’s board of directors, revealed two important messages at the meeting. One is that Evergrande must achieve at least one “red line” set by the government last year – ‘turn it green’ before the end of this month, June 30.

The other is that Evergrande’s interest-bearing liabilities at the end of June are expected to drop to below 600 billion yuan ($93.82 billion) from their peak of 874.3 billion ($136.7 bn) last year.

The purpose of this mid-year exchange is not only to let partners know Evergrande’s operational and future development plans, but also as a response to some current market rumours.

Recently, there has been talk that Evergrande’s funding is under pressure to speed up withdrawal of funds to service its enormous debt, to implement price-cutting promotions in many places across the country, and tougher requirements put on customers’ methods of payment.

In fact, paper.cn said the twice-a-year price reduction promotions have become Evergrande’s regular marketing method. In the just-concluded 531 House Buying Festival, Evergrande launched promotional activities such as limited-time special offers and gifts for house purchases. During the festival, there were special listings for sale every day.

Rumours about promotions and commercial bill payment have also triggered changes in Evergrande’s stock and bonds in local markets. On June 3, Evergrande’s stocks saw varying degrees of decline. China Evergrande closed at 11.18 yuan per share, a decrease of 5.25%, while Evergrande Property and Evergrande Auto also fell 4.6% and 3.39%, respectively. Evergrande’s bonds also fell.

Xu Jiayin bids to ease concern

Therefore, Xu Jiayin’s speech at the communication meeting was regarded as a response to recent market rumours, and a bid to steady the hearts of all parties.

In response to the “three red lines” that have attracted much attention, Xu Jiayin revealed at the meeting that the amount of interest-bearing liabilities will be reduced to “5” before June 30 this year. This would be in line with the established process, analysts said.

At the company’s performance meeting in March last year, Evergrande announced that it would implement a new strategy of “high growth, scale control, and debt reduction” – that is, to reduce interest-bearing liabilities by increasing sales and strictly controlling the scale of its land bank. In the second half of the year, the government introduced its “three red lines” because of concerns about the scale of debt in the real estate and property development sector. More than 50 real estate companies, including Evergrande, were classed as “red” because of the scale of their debt.

At the end of 2020, Evergrande’s net debt ratio was 153%, the debt-to-asset ratio after excluding advance receipts was 83.4%, and the cash short-term debt ratio was 0.54, which is still in the “red range”.

At the performance meeting in March, President Xia Haijun revealed that the interest-bearing liabilities for the next three years will fall below 590 billion yuan on June 30, 2021, and below 450 billion yuan on June 30, 2022, and to less than 350 billion yuan by June 30, 2023. In terms of progress on the “three red lines”, Evergrande plans to reduce its net debt ratio to below 100% by the end of this month, while its cash short-term debt ratio should reach more than 1 by year-end, and its debt-to-asset ratio should fall below 70%, to fully meet regulatory requirements.

At the communication meeting, Xu Jiayin also pointed out that Evergrande has completed its transformation to “multi-industry + digital technology” based on Minsheng Real Estate. Its eight major industries already have four listing platforms. In the future, other industries will also be spun-off and listed.

In terms of sales, Evergrande achieved sales of 63.86 billion yuan in May, a year-on-year increase of 6%; that covered a sales area of 7.817 million square metres, a year-on-year increase of 22.8%, while the sales return was 51.81 billion yuan. As of the end of May, Evergrande had accumulated sales of 285.16 billion yuan, a sales area of 33.833 million square metres, and a sales return of 250.74 billion yuan.

Evergrande’s sales target for the yet is 750 billion yuan, so the company’s performance rate as of the first five months was 38%.



Chris Gill

With over 30 years reporting on China, Gill offers a daily digest of what is happening in the PRC.


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